10-K

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Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

ý ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2001

Commission File No. 0-16614

NEORX CORPORATION
(Exact name of Registrant as specified in its charter)

Washington
(State or other jurisdiction of
incorporation or organization) 91-1261311
(IRS Employer Identification No.)

410 West Harrison Street, Seattle, Washington 98119-4007
(Address of principal executive offices)

Registrant's telephone number, including area code:
(206) 281-7001

Securities registered pursuant to Section 12(b) of the Act:
None

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.02 Par Value
$2.4375 Convertible Exchangeable Preferred Stock, Series 1

        Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ý No o

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  o

        The aggregate market value of voting stock held by nonaffiliates of the Registrant as of March 12, 2002 was approximately $95 million (based on the closing price for shares of the Registrant's Common Stock as reported by the NASDAQ National Market for the last trading date prior to that date). Shares of Common Stock held by each officer, director and holder of 5% or more of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

        As of March 12, 2002, approximately 26.6 million shares of the Registrant's Common Stock, $.02 par value per share, were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

(1)

Portions of the Registrant's 2001 Notice of Annual Meeting and Proxy Statement for the Registrant's Annual Meeting of Shareholders to be held on May 2, 2002 are incorporated by reference in Part III of this Form 10-K.

PART I

IMPORTANT INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

        This annual report on Form 10-K contains forward-looking statements. These statements relate to future events or future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "expect," "plan," "intend," "anticipate," "believe," "estimate," "predict," "potential," "propose" or "continue," the negative of these terms or other terminology. These statements reflect our current views with respect to future events and are based on assumptions and are subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on these forward-looking statements. We discuss many of these risks in greater detail under the heading "Risk Factors" below. Also, these forward-looking statements represent our estimates and assumptions only as of the date of this Form 10-K.

        You should read this Form 10-K and the documents that we incorporate by reference completely and with the understanding that our actual results, performance and achievements may be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

RISK FACTORS

        This section briefly discusses certain risks that should be considered by shareholders and prospective investors in NeoRx. Many of these risks are discussed in other contexts in other sections of this report.

We have a history of operating losses, we expect to continue to incur losses, and we may never become profitable.

        We have not been profitable for any year since our formation in 1984. As of December 31, 2001, we had an accumulated deficit of $183 million. These losses have resulted principally from costs incurred in our research and development programs and from our general and administrative activities. To date, we have been engaged only in research and development activities and have not generated any significant revenues from product sales. We do not anticipate that any of our proposed products will be commercially available for several years. We expect to incur additional operating losses in the future. These losses may increase significantly as we expand development and clinical trial efforts. Our ability to achieve long-term profitability is dependent upon obtaining regulatory approvals for our proposed products and successfully commercializing our products alone or with third parties. However, our operations may not be profitable even if we succeed in commercializing any of our products under development.

We will need to raise additional capital, and our future access to capital is uncertain.

        It is expensive to develop cancer therapy products and conduct clinical trials for these products. We plan to continue to simultaneously conduct clinical trials and preclinical research for a number of different cancer therapy product candidates, which is costly. Our future revenues may not be sufficient to support the expense of our operations and the conduct of our clinical trials and preclinical research. We will need to raise additional capital:

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to fund operations;



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to continue the research and development of our therapeutic product candidates; and



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to commercialize our proposed products.

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        We believe that our existing funds will be sufficient to satisfy our financing requirements into the first quarter of 2003. However, we may need additional financing within this time frame depending on a number of factors, including the following:

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the rate of progress and costs of our clinical trial and research and development activities;



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the costs of developing manufacturing operations;



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the costs of developing marketing operations, if we undertake those activities;



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the amount of milestone payments we might receive from potential collaborators;



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our degree of success in commercializing our cancer therapy product candidates;



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the emergence of competing technologies and other adverse market developments;



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changes in or terminations of our existing collaborations and licensing arrangements; and



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the costs of preparing, filing, prosecuting, maintaining and enforcing patent claims and other intellectual property rights.

        We may not be able to obtain additional financing on favorable terms or at all. If we are unable to raise additional funds when we need them, we may be required to delay, reduce or eliminate some or all of our development programs and some or all of our clinical trials. We also may be required to enter into relationships with third parties to develop or commercialize products or technologies that we otherwise would have sought to develop independently. If we raise additional funds by issuing equity securities, further dilution to shareholders may result, and new investors could have rights superior to current security holders.

Our potential products must undergo rigorous clinical testing and regulatory approvals, which could be costly, time consuming, subject us to unanticipated delays or prevent us from marketing any products.

        The manufacture and marketing of our proposed products and our research and development activities are subject to regulation for safety, efficacy and quality by the Food and Drug Administration (FDA) in the United States and comparable authorities in other countries.

        The process of obtaining FDA and other required regulatory approvals, including foreign approvals, is expensive, often takes many years and can vary substantially based upon the type, complexity and novelty of the products involved. Our Skeletal Targeted Radiotherapy (STR) and Pretarget® product candidates are novel; therefore, regulatory agencies lack direct experience with them. This may lengthen the regulatory review process, increase our development costs and delay or prevent commercialization of our STR and Pretarget® product candidates. A STR phase III study was placed on clinical hold by the FDA after some patients in our STR phase I/II multiple myeloma trials developed a serious late toxicity. The FDA requested that we collect additional radiation dosimetry data from a small number of patients to validate the revised methodology we propose to use to calculate radiation dose in our pivotal trials. We have discussed with the FDA a revised plan for pivotal trials of STR in patients with multiple myeloma, and submitted a protocol for the requested radiation study. We plan to begin enrolling multiple myeloma patients in this dosimetry study in the first quarter of 2002. Based on the results of this study and subject to approval from the FDA, we plan to initiate a revised pivotal program for STR in the second half of 2002. Our pivotal trials for STR cannot begin until we receive authorization from the FDA.

        No cancer products using our STR or Pretarget® technologies have been approved for marketing. Consequently, there is no precedent for the successful commercialization of products based on our technologies. In addition, we have had only limited experience in filing and pursuing applications necessary to gain regulatory approvals. This may impede our ability to obtain timely approvals from the FDA or foreign regulatory agencies, if at all. We will not be able to commercialize any of our potential products

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until we obtain regulatory approval, and consequently any delay in obtaining, or inability to obtain, regulatory approval could harm our business.

        If we violate regulatory requirements at any stage, whether before or after marketing approval is obtained, we may be fined, forced to remove a product from the market or experience other adverse consequences, including delay, which could materially harm our financial results. Additionally, we may not be able to obtain the labeling claims necessary or desirable for the promotion of our proposed products. We also may be required to undertake post-marketing trials. In addition, if we or other parties identify side effects after any of our products are on the market, or if manufacturing problems occur, regulatory approval may be withdrawn and reformulation of our products, additional clinical trials, changes in labeling of our products, and additional marketing applications may be required.

        The requirements governing the conduct of clinical trials, manufacturing and marketing of our proposed products outside the United States vary widely from country to country. Foreign approvals may take longer to obtain than FDA approvals and can involve additional testing. Foreign regulatory approval processes include all of the risks associated with the FDA approval processes. Also, approval of a product by the FDA does not ensure approval of the same product by the health authorities of other countries.

We may take longer to complete our clinical trials than we project, or we may be unable to complete them at all.

        Although for planning purposes we project the commencement, continuation and completion of our clinical trials, a number of factors, including scheduling conflicts with participating clinicians and clinical institutions and difficulties in identifying and enrolling patients who meet trial eligibility criteria, may cause significant delays. We may not commence or complete clinical trials involving any of our products as projected or may not conduct them successfully.

        We rely on academic institutions or clinical research organizations to conduct, supervise or monitor some or all aspects of clinical trials involving our proposed products. We will have less control over the timing and other aspects of those clinical trials than if we conducted them entirely on our own. If we fail to commence or complete, or experience delays in, any of our planned clinical trials, our stock price and our ability to conduct our business as currently planned could be harmed.

If testing of a particular product does not yield successful results, we will be unable to commercialize that product.

        Our research and development programs are designed to test the safety and efficacy of our proposed products in humans through extensive preclinical and clinical testing. We may experience numerous unforeseen events during, or as a result of, the testing process that could delay or prevent commercialization of our proposed products, including the following:

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safety and efficacy results attained in early human clinical trials may not be indicative of results that are obtained in later clinical trials;



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the results of preclinical studies may be inconclusive, or they may not be indicative of results that will be obtained in human clinical trials;



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after reviewing test results, we or any potential collaborators may abandon projects that we previously believed were promising;



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our potential collaborators or regulators may suspend or terminate clinical trials if the participating subjects or patients are being exposed to unacceptable health risks; and



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the effects of our potential products may not be the desired effects or may include undesirable side effects or other characteristics that preclude regulatory approval or limit their commercial use if approved.

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        Clinical testing is very expensive, can take many years, and the outcome is uncertain. We cannot at this time predict if, when or under what conditions we will be permitted to initiate our revised pivotal program for STR. The data collected from our clinical trials may not be sufficient to support regulatory approval of our proposed STR multiple myeloma product, or any of our other proposed products. The clinical trials of our proposed STR multiple myeloma product, and our other products under development, may not be completed on schedule and the FDA or foreign regulatory agencies may not ultimately approve any of our product candidates for commercial sale. Our failure to adequately demonstrate the safety and efficacy of a cancer therapy product under development would delay or prevent regulatory approval of the product, which could prevent us from achieving profitability.

We are dependent on suppliers for the timely delivery of materials and services and may experience in the future interruptions in supply.

        To be successful, we need to develop and maintain reliable and affordable third-party suppliers of:

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commercial quantities of holmium-166, the radionuclide used in our STR product candidate, and yttrium-90, the radionuclide used in our Pretarget® product candidates;



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the small-molecule compound used in our STR product candidate to deliver holmium-166 to the bone; and



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the proteins and small-molecule compounds used in our Pretarget® program.

        Sources of some of these materials are limited, and we may be unable to obtain these materials in amounts and at prices necessary to successfully commercialize our proposed products. Timely delivery of materials, including the radionuclides used in our STR and Pretarget® product candidates, is critical to our success. For example, holmium-166, the radionuclide used in our STR product candidate, loses its effectiveness for treating patients within a short period of time. As a result, the STR product must be shipped within 24 hours of its manufacture to the site where the patient is to be treated. Failures or delays in the manufacturing and shipping processes could compromise the quality and effectiveness of our products. We currently depend on a single source vendor, University of Missouri Research Reactor facility group (MURR), for the holmium-166 component of our STR product candidate. We plan to establish an additional supplier for this material. There are, in general, relatively few alternative sources of holmium-166. While the current vendor generally has provided us these materials with acceptable quality, quantity and cost in the past, it may be unable or unwilling to meet out future demands. If we have to switch to a replacement vendor, the manufacture and delivery of our products could be interrupted for an extended period.

        In December 2001 we entered into a contract with MURR to supply holmium-166, the radionuclide used in our STR product candidate. MURR is responsible for the manufacture of holmium-166, including process qualification, quality control, packaging and shipping, from its Columbia, Missouri reactor facility. This supply contract follows a previous arrangement in which MURR provided NeoRx supplies of holmium-166 for the STR product in development. Our business and operations could be materially adversely affected if MURR does not continue to perform satisfactorily under this agreement. We intend to negotiate a long-term supply contract for holmium-166. If we are unable to negotiate a long-term contract in a timely fashion upon favorable terms, or if under our current supply contract, MURR is unable or unwilling to provide supplies of holmium-166 in a satisfactory manner, we may suffer delays in, or be prevented from, initiating or completing pivotal clinical trials of our STR product.

        Yttrium-90, the radionuclide used in our Pretarget® product candidates, is available from several commercial sources in the US and Europe. We have qualified two of these sources to supply this radionuclide for our Pretarget® product candidates. We intend to establish longer-term supply agreements with one or more yttrium-90 producers for phase II and III clinical trials. The radiolabeling of the DOTA-biotin compound, also used in our Pretarget® product, is currently performed at our manufacturing

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facility in Seattle. We plan to transfer the radiolabeling process to our radiopharmaceutical facility in Denton, Texas for phase III clinical trials.

If we fail to negotiate and maintain collaborative arrangements with third parties, our manufacturing, clinical testing, sales and marketing activities may be delayed or reduced.

        We rely in part on third parties to perform for us or assist us with a variety of important functions, including research and development, manufacturing and clinical trials management. We also license technology from others to enhance or supplement our technologies. We may not be able to locate suppliers to manufacture our products at a cost or in quantities necessary to make them commercially viable. We intend to rely on third-party contract manufacturers to produce large quantities of certain materials needed for clinical trials and product commercialization. Third-party manufacturers may not be able to meet our needs with respect to timing, quantity or quality. If we are unable to contract for a sufficient supply of needed materials on acceptable terms, or if we should encounter delays or difficulties in our relationships with manufacturers, our clinical testing may be delayed, thereby delaying the submission of products for regulatory approval or the market introduction and subsequent sales of our products. Any such delay may lower our revenues and potential profitability.

        Moreover, any potential third-party manufacturers and we must continually adhere to current Good Manufacturing Practices (cGMP) regulations enforced by the FDA through its facilities inspection program. If our facilities, or the facilities of these manufacturers, cannot pass a pre-approval plant inspection, the FDA will not grant pre-market approval of our cancer therapy product candidates. In complying with cGMP and foreign regulatory requirements, we and any of our third-party manufacturers will be obligated to expend time, money and effort in production, record-keeping and quality control to assure that our products meet applicable specifications and other requirements. If any of our third-party manufacturers or we fail to comply with these requirements, we may be subject to regulatory action.

        In April 2001, we purchased a radiopharmaceutical manufacturing and distribution facility and certain other assets located in Denton, Texas from International Isotopes Inc. In addition to the manufacturing facility, we purchased existing equipment, documentation, and certain processes. NeoRx also retained approximately 40 employees from International Isotopes. The facility has achieved cGMP status and has been issued appropriate radiation permits by the State of Texas. We intend to use the facility to produce STR and other products in development.

        The NeoRx radiopharmaceutical manufacturing facility in Denton is the principal manufacturing site for the proposed STR product for our planned multiple myeloma clinical trials. This facility is responsible for all aspects of the manufacture of STR, including process qualification, quality control, packaging and shipping. We believe that the Denton facility will be sufficient to meet our needs for the planned STR multiple myeloma phase III clinical trials. In January 2001, we extended an existing agreement with ABC Laboratories, Inc. (ABC) for ABC to manufacture STR product for clinical trials. ABC had supplied doses of STR for the phase I/II clinical trials. ABC has been qualified for all aspects of the manufacture of STR, including process qualification, quality control, packaging and shipping, and is under contract to the Company to continue to provide these operations through the end of June 2002. We plan to undertake all aspects of STR manufacture and shipment through our Denton, Texas facility and intend to maintain our relationship with ABC as a back-up supplier through the duration of the existing manufacturing agreement.

        If we are unable to maintain the necessary cGMP status and permits for our Denton radiopharmaceutical facility, or if we or ABC should encounter delays or difficulties in any aspect of the manufacture of STR, our clinical testing may be delayed, thereby delaying the submission of products for regulatory approval or the market introduction and subsequent sales of the product. Any such delay may lower our revenues and potential profitability.

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        We intend to enter into collaborations for one or more of the research, development, manufacturing, marketing and other commercialization activities relating to some of our products under development. If we are unable to secure collaborators, or if we lose collaborators, our product development and potential for profitability may suffer. If any collaborator breaches or terminates an agreement with us, or fails to conduct its collaborative activities in a timely manner, the commercialization of our products under development could be slowed down or blocked completely. Disputes may arise between NeoRx and collaborators on a variety of matters, including financial or other obligations under our agreements. These disputes may be both expensive and time-consuming and may result in delays in the development and commercialization of our proposed products.

We face substantial competition in the development of cancer therapies and may not be able to compete successfully, and our potential products may be rendered obsolete by rapid technological change.

        The competition for development of cancer therapies is intense. There are numerous competitors developing products to treat the diseases for which we are seeking to develop products. We are initially focusing our STR product candidate on the treatment of multiple myeloma. Celgene Corp.'s thalidomide product is in development for treatment of multiple myeloma. Other therapeutics with anti-angiogenic properties and other modes of action are in clinical development for treatment of multiple myeloma. Some competitors have adopted product development strategies targeting cancer cells with antibodies. IDEC Pharmaceuticals Corp. has a monoclonal antibody product approved for treatment of non-Hodgkin's lymphoma (NHL), and a radioimmunotherapeutic consisting of an anti-CD20 antibody chemically linked to the radionuclide yttrium-90 (Zevalin™), which received FDA approval for marketing in February 2002. Immunomedics, Inc. and Corixa Corp. have radioimmunotherapy (RIT) products for NHL in late-stage development. Many emerging companies, including Immunomedics, IDEC and Corixa, have corporate partnership arrangements with large, established companies to support the research, development and commercialization of products that may be competitive with ours. In addition, a number of established pharmaceutical companies, including GlaxoSmithKline, Amersham PLC, Mallinckrodt, Inc. (Tyco Healthcare) and Bristol-Myers Squibb Co., are developing proprietary technologies or have enhanced their capabilities by entering into arrangements with, or acquiring, companies with proprietary antibody-based technology or other technologies applicable to the treatment of cancer. Many of our existing or potential competitors have, or have access to, substantially greater financial, research and development, marketing and production resources than we do and may be better equipped than we are to develop, manufacture and market competing products. Our competitors may have, or may develop and introduce, new products that would render our technology and products under development less competitive, uneconomical or obsolete.

        We also expect to face increasing competition from universities and other non-profit research organizations. These institutions carry out a significant amount of cancer research and development. These institutions are becoming increasingly aware of the commercial value of their findings and more active in seeking patent and other proprietary rights, as well as licensing revenues.

If we are unable to protect our proprietary rights, we may not be able to compete effectively, or operate profitably.

        Our success is dependent in part on obtaining, maintaining and enforcing our patents and other proprietary rights and our ability to avoid infringing the proprietary rights of others. Patent law relating to the scope of claims in the biotechnology field in which we operate is still evolving and, consequently, patent positions in our industry may not be as strong as in other better-established fields. Accordingly, the United States Patent and Trademark Office (USPTO) may not issue patents from the patent applications owned by or licensed to us. If issued, the patents may not give us an advantage over competitors with similar technology.

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        We own more than 100 issued United States patents and have licenses to additional patents. However, the issuance of a patent is not conclusive as to its validity or enforceability and it is uncertain how much protection, if any, will be given to our patents if we attempt to enforce them and they are challenged in court or in other proceedings, such as oppositions, which may be brought in foreign jurisdictions to challenge the validity of a patent. A third party may challenge the validity or enforceability of a patent after its issuance by the USPTO. It is possible that a competitor may successfully challenge our patents or that a challenge will result in limiting their coverage. Moreover, the cost of litigation to uphold the validity of patents and to prevent infringement can be substantial. If the outcome of litigation is adverse to us, third parties may be able to use our patented invention without payment to us. Moreover, it is possible that competitors may infringe our patents or successfully avoid them through design innovation. To stop these activities we may need to file a lawsuit. These lawsuits are expensive and would consume time and other resources, even if we were successful in stopping the violation of our patent rights. In addition, there is a risk that a court would decide that our patents are not valid and that we do not have the right to stop the other party from using the inventions. There is also the risk that, even if the validity of our patents were upheld, a court would refuse to stop the other party on the ground that its activities do not infringe our patents.

        In addition to the intellectual property rights described above, we also rely on unpatented technology, trade secrets and confidential information. Therefore, others may independently develop substantially equivalent information and techniques or otherwise gain access to or disclose our technology. We may not be able to effectively protect our rights in unpatented technology, trade secrets and confidential information. We require each of our employees, consultants and advisors to execute a confidentiality agreement at the commencement of an employment or consulting relationship with us. However, these agreements may not provide effective protection of our information or, in the event of unauthorized use or disclosure, they may not provide adequate remedies.

The use of our technologies could potentially conflict with the rights of others.

        Our competitors or others may have or acquire patent rights that they could enforce against us. If they do so, we may be required to alter our products, pay licensing fees or cease activities. If our products conflict with patent rights of others, third parties could bring legal actions against us claiming damages and seeking to enjoin manufacturing and marketing of the affected products. If these legal actions are successful, in addition to any potential liability for damages, we could be required to obtain a license in order to continue to manufacture or market the affected products. We may not prevail in any legal action and a required license under the patent may not be available on acceptable terms or at all.

We may incur substantial costs as a result of litigation or other proceedings relating to patent and other intellectual property rights.

        The cost to us of any litigation or other proceedings relating to intellectual property rights, even if resolved in our favor, could be substantial. Some of our competitors may be better able to sustain the costs of complex patent litigation because they have substantially greater resources. If there is litigation against us, we may not be able to continue our operations. If third parties file patent applications, or are issued patents claiming technology also claimed by us in pending applications, we may be required to participate in interference proceedings in the USPTO to determine priority of invention. We may be required to participate in interference proceedings involving our issued patents and pending applications. We may be required to cease using the technology or license rights from prevailing third parties as a result of an unfavorable outcome in an interference proceeding. A prevailing party in that case may not offer us a license on commercially acceptable terms.

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Product liability claims in excess of the amount of our insurance would adversely affect our financial condition.

        The testing, manufacturing, marketing and sale of the cancer therapy products that we have under development may subject us to product liability claims. We are insured against such risks up to a $10 million annual aggregate limit in connection with clinical trials of our products under development and intend to obtain product liability coverage in the future. However, insurance coverage may not be available to us at an acceptable cost, if at all. We may not be able to obtain insurance coverage that will be adequate to satisfy any liability that may arise. Regardless of merit or eventual outcome, product liability claims may result in decreased demand for a product, injury to our reputation, withdrawal of clinical trial volunteers and loss of revenues. As a result, regardless of whether we are insured, a product liability claim or product recall may result in losses that could be material.

Our use of radioactive and other hazardous materials exposes us to the risk of material environmental liabilities, and we may incur significant additional costs to comply with environmental laws in the future.

        Our research and development and clinical manufacturing processes, as well as the manufacturing processes that may be used by our collaborators, involve the controlled use of hazardous and radioactive materials. As a result, we are subject to foreign, federal, state and local laws, rules, regulations and policies governing the use, generation, manufacture, storage, air emission, effluent discharge, handling and disposal of certain materials and wastes in connection with our use of these materials. Although we believe that our safety procedures and the safety procedures utilized by our manufacturing partner for handling and disposing of such materials comply with the standards prescribed by such laws and regulations, we may be required to incur significant costs to comply with environmental and health and safety regulations in the future. In addition, the risk of accidental contamination or injury from hazardous and radioactive materials cannot be completely eliminated. In the event of such an accident, we could be held liable for any resulting damages, and any such liability could exceed our resources.

Even if we bring products to market, changes in healthcare reimbursement could adversely affect our ability to effectively price our products or obtain adequate reimbursement for sales of our products.

        The levels of revenues and profitability of biotechnology companies may be affected by the continuing efforts of government and third-party payors to contain or reduce the costs of healthcare through various means. For example, in certain foreign markets pricing or profitability of prescription pharmaceuticals is subject to governmental control. In the United States, there have been, and we expect that there will continue to be, a number of federal and state proposals to implement similar governmental controls. It is uncertain what legislative proposals will be adopted or what actions federal, state or private payors for healthcare goods and services may take in response to any healthcare reform proposals or legislation. Even in the absence of statutory change, market forces are changing the healthcare sector. We cannot predict the effect healthcare reforms may have on the development, testing, commercialization and marketability of our cancer therapy products. Further, to the extent that such proposals or reforms have a material adverse effect on the business, financial condition and profitability of other companies that are prospective collaborators for certain of our potential products, our ability to commercialize our products under development may be adversely affected. In addition, both in the US and elsewhere, sales of prescription pharmaceuticals depend in part on the availability of reimbursement to the consumer from third-party payors, such as governmental and private insurance plans. Third-party payors are increasingly challenging the prices charged for medical products and services. If we succeed in bringing one or more products to market, we cannot be certain that these products will be considered cost-effective and that reimbursement to the consumer will be available or will be sufficient to allow us to sell our products on a competitive or profitable basis.

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The loss of key employees could adversely affect our operations.

        We are a small company with fewer than 120 employees. Our success depends, to a significant extent, on the continued contributions of our principal management and scientific personnel. The loss of the services of one or more of the principal members of our scientific and management staff could delay our product development programs and our research and development efforts. We do not maintain key person life insurance on any of our officers, employees or consultants.

        Competition for qualified employees among companies in the biotechnology and biopharmaceutical industry is intense. Our future success depends upon our ability to attract, retain and motivate highly skilled employees. In order to commercialize our proposed products successfully, we may be required to expand substantially our workforce, particularly in the areas of manufacturing, clinical trials management, regulatory affairs, business development and sales and marketing. These activities will require the addition of new personnel, including management, and the development of additional expertise by existing management personnel.

Our stock price is volatile and, as a result, you could lose some or all of your investment.

        There has been a history of significant volatility in the market prices of securities of biotechnology companies, including our common stock, and it is likely that the market price of our common stock will continue to be highly volatile. Our business and the relative prices of our common stock may be influenced by a large variety of industry factors, including:

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announcements by us or our competitors concerning acquisitions, strategic alliances, technological innovations and new commercial products;



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the availability of critical materials used in developing our products;



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the results of clinical trials;



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developments concerning patents, proprietary rights and potential infringement; and



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the expense and time associated with and the extent of our ultimate success in securing government approvals.

        In addition, public concern about the safety of the products we develop, comments by securities analysts, and general market conditions may have a significant effect on the market price of our common stock. The realization of any of the risks described in this report, as well as other factors, could have a material adverse impact on the market price of our common stock and may result in a loss of some or all of your investment.

        In the past, securities class action litigation has often been brought against companies following periods of volatility in their stock prices. We may in the future be the targets of similar litigation. Securities litigation could result in substantial costs and divert our management's time and resources, which could cause our business to suffer.

Certain provisions in our articles of incorporation and Washington state law could discourage a change of control of NeoRx.

        Our articles of incorporation authorize our board of directors to issue up to 3,000,000 shares of preferred stock and to determine the price, rights, preference, privileges and restrictions, including voting rights, of those shares without any further vote or action by our shareholders. The issuance of preferred stock could have the effect of delaying, deferring or preventing a change of control of NeoRx, even if this change would benefit our shareholders. In addition, the issuance of preferred stock may adversely affect the market price of our common stock and the voting and other rights of the holders of our common stock.

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        We have adopted a shareholders' rights plan, which is intended to protect the rights of shareholders by deterring coercive or unfair takeover tactics. The board of directors declared a dividend to holders of our common stock of one preferred share purchase right for each outstanding share of the common stock. The right is exercisable ten days following the offer to purchase or acquisition of beneficial ownership of 20% of the outstanding common stock by a person or group of affiliated persons. Each right entitles the registered holder, other than the acquiring person or group, to purchase from NeoRx one-hundredth of one share of Series A Junior Participating Preferred Stock at the price of $40, subject to adjustment. The rights expire April 10, 2006. In lieu of exercising the right by purchasing one one-hundredth of one share of Series A Preferred Stock, the holder of the right, other than the acquiring person or group, may purchase for $40 that number of shares of our common stock having a market value of twice that price.

        Washington law imposes restrictions on certain transactions between a corporation and significant shareholders. Chapter 23B.19 of the Washington Business Corporation Act prohibits a target corporation, with some exceptions, from engaging in particular significant business transactions with an acquiring person, which is defined as a person or group of persons that beneficially owns 10% or more of the voting securities of the target corporation, for a period of five years after the acquisition, unless the transaction or acquisition of shares is approved by a majority of the members of the target corporation's board of directors prior to the acquisition. Prohibited transactions include, among other things:

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a merger or consolidation with, disposition of assets to, or issuance or redemption of stock to or from the acquiring person;



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termination of 5% or more of the employees of the target corporation; or



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receipt by the acquiring person of any disproportionate benefit as a shareholder.

        A corporation may not opt out of this statute. This provision may have the effect of delaying, deterring or preventing a change in control of NeoRx or limiting future investment in NeoRx by significant shareholders.

Item 1.    BUSINESS

The Company

        NeoRx is a cancer therapeutics company developing products for targeted delivery of anti-cancer agents, including radiopharmaceuticals, directly to sites of disease. The Company is building on the success of antibody therapeutics and other targeting technologies to develop sophisticated next-generation targeted therapies for modern multidisciplinary oncology. NeoRx currently is developing two technologies for targeting cancers with radiopharmaceuticals, and has three product candidates in clinical testing: Skeletal Targeted Radiotherapy (STR), Pretarget® Lymphoma and Pretarget® Carcinoma.

Skeletal Targeted Radiotherapy (STR) is in development for the treatment of multiple myeloma. STR targets bone and bone marrow with a small-molecule bone-seeking agent coupled to a radionuclide to deliver high doses of radiation to tumor sites. Phase I/II trials in patients with multiple myeloma demonstrated positive clinical activity of STR with high-dose chemotherapy, including substantial response rates. The FDA placed a phase III trial on clinical hold after some phase I/II patients developed a serious delayed toxicity. We have since undertaken a comprehensive scientific peer review of the STR development program and data from the phase I/II trials. We have discussed with the FDA our revised plan for pivotal trials of STR in patients with refractory or relapsed multiple myeloma, and have submitted a protocol for a new radiation dosimetry study. We plan to begin enrolling multiple myeloma patients in this dosimetry study in the first quarter of 2002. Beginning with the dosimetry study, we plan to resume clinical development of STR.

Pretarget® Technology is a broad development platform for targeted therapeutics that deliver intense doses of cancer-killing agents to tumor cells, while largely sparing healthy tissues. Competing targeting

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technologies in development use radionuclides directly linked to antibodies. These molecules circulate slowly, exposing the body to their radioactive payload, and limiting the dose that can be administered safely. The Pretarget approach uncouples the targeting agent from the radionuclide, with separate administration of a fusion protein to target tumor cells, a clearing agent to remove unbound fusion protein, and a radiotherapeutic that attaches rapidly to the pre-localized fusion protein to destroy tumor cells. Pretarget technology can incorporate a wide range of specific fusion proteins and therapeutic agents to address various cancers and other diseases. Phase I/II trials of our first two Pretarget product candidates are underway in patients with non-Hodgkin's lymphoma (NHL) and gastrointestinal adenocarcinoma.

        In 2001 we implemented a number of carefully planned management, organizational and operational changes, with the goal of moving our product candidates forward in clinical trials, and transforming the Company for growth as a therapeutic product company. In addition to bringing in a new Chief Executive Officer and a new Chief Operating Officer, we added capabilities in clinical research, regulatory affairs, biostatistics, manufacturing and quality assurance to our core scientific team. We also formed a corporate development team of experienced industry professionals, charged with strengthening the Company's competitive position, accessing new opportunities for growth, and deriving value from our technology and manufacturing assets.

        Our strategy is to develop, manufacture and commercialize our products, retaining as much as possible of the economics of each product. We intend to selectively form partnerships, where optimal, for product development and commercialization, and for access to complementary technologies and products to strengthen our development pipeline. We will seek to raise additional funding for our product development programs through partnerships, license agreements for our non-strategic technology assets, contract manufacturing services, and public or private equity financing.

Product Candidates

Cancer and its Treatment

        Cancer is a broad group of diseases characterized by the uncontrolled growth and spread of abnormal cells. Cancer cells have the ability to migrate from their sites of origin to invade and damage other tissues and organs, through a process called metastasis. The American Cancer Society estimated that nearly 1,268,000 new cancer cases would be diagnosed in the US in 2001, and 553,400 Americans would die from cancer. Following cardiovascular disease, cancer is the second leading cause of death in the US and other industrialized nations. The incidence of cancer is expected to increase in the coming decades, as life expectancies continue to increase in the industrialized world.

        There is considerable need for better treatments for cancer. Available therapies afford limited success. Even with the recent introduction of new therapies, there have been few significant improvements in patient survival, and any improvements in survival typically are measured in months, not years. Current treatments for cancer include surgery, external-beam radiation, chemotherapy, hormone therapy for some tumors and, more recently, certain biological agents such as interferons and antibodies. These treatments sometimes can be curative, but generally are effective only if the cancer is detected early. Chemotherapeutics, which in general act by interfering with DNA synthesis and cell replication, are generally palliative in their effects, and seldom provide a long-term cure. Chemotherapy is typically the primary therapy for tumors that have metastasized. Chemotherapy drugs are usually administered systemically so that the drug can circulate throughout the body to reach the metastases. As chemotherapy drugs circulate, they exert their toxic effects on healthy cells as well as cancer cells. Consequently, cancer patients receiving chemotherapy often suffer severe, sometimes life-threatening side effects, such as damage to bone marrow, lungs, heart, kidneys and nerves. Therefore, the optimal drug dose for killing cancer cells must often be reduced to avoid intolerable damage to normal cells and vital organs.

        Advances in genomics are beginning to reveal the underlying mechanisms of cancer, and to provide a broad range of potential targets for new cancer therapeutics. These targets include cell-surface receptors,

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growth factors, enzymes, genes, and other cellular factors involved in angiogenesis, intracellular signaling, replication, and other cellular processes. Products in development include novel-acting chemotherapeutics, hormones, vaccines, immunomodulators, gene therapies, and anti-sense oligonucleotides. One of the leading areas for development of new therapeutics is tumor-specific targeted therapies, using antibodies or other targeting modalities. We believe that development of targeted therapies signals an important shift and a promising new avenue for cancer therapy.

Targeted Therapies

        In recent years there has been a significant effort to develop and introduce targeted therapies that deliver chemotherapeutic or radiotherapeutic agents directly to cancer cells, to increase the efficacy and mitigate the adverse side effects of these cytotoxic agents. The promise of targeted therapies is enhanced therapeutic benefit and improved safety, through localization of intense doses of therapeutic molecules to specific sites of disease, while sparing healthy tissues. A variety of targeting agents have been investigated, including antibodies, peptides, chelating agents and small-molecule drugs. Much research and development has focused on the use of tumor antigen-specific monoclonal antibodies to target cancer cells. Antibodies are specific proteins produced by the immune system in response to an antigen, such as a foreign substance, pathogen or protein on the surface of cancer cells. Since the early 1980s, a number of cell-surface antigens specific to certain types of tumor cells have been identified, and antibodies that specifically bind these antigens have been developed.

        Monoclonal antibody technology, and methods to genetically engineer human/mouse chimeric monoclonal antibodies or humanized antibodies, have enabled introduction of monoclonal antibody therapeutics for cancer and other diseases. Herceptin® (Trastuzumab) and Rituxan® (Rituximab) are examples of monoclonal antibodies introduced in the late 1990s for cancer therapy. Although their mechanisms of action have yet to be ascertained, both antibody products may induce programmed cell death (apoptosis) or lysis, among other possible mechanisms.

        The anti-tumor effects of specific monoclonal antibodies may be significantly enhanced by conjugating these antibodies to chemotherapeutic or radiotherapeutic agents. Several companies, including Immunomedics, Inc. and Corixa Corp. are developing radioimmunotherapeutics for non-Hodgkin's lymphoma (NHL) consisting of a tumor-specific antibody linked to a radionuclide. IDEC Pharmaceuticals recently received FDA approval for Zevalin™, a radioimmunotherapeutic consisting of an anti-CD20 antibody chemically linked to the radionuclide yttrium-90. Though such constructs may augment the cancer-killing power of "naked" antibodies, these relatively large molecules circulate and reach their target slowly, exposing healthy tissues to their radioactive payload.

        Antibody fragments and fusion proteins that incorporate the tumor-specific binding of antibodies, but have improved biodistribution and pharmacokinetic properties, offer promise for further progress in the development of targeted therapies. NeoRx is building on the success of antibody therapeutics and other targeting technologies, and the demonstrated anti-tumor effects of radiotherapeutics, to develop advanced, targeted therapies with improved safety and efficacy, for greater patient benefit. We expect such targeted therapeutics to play a very significant role alongside conventional therapies in the treatment of cancer for years to come.

Skeletal Targeted Radiotherapy (STR)

        NeoRx is developing Skeletal Targeted Radiotherapy (STR) for treatment of multiple myeloma and potentially other bone and bone-marrow related cancers. Multiple myeloma is a cancer of the plasma cells, the antibody-producing cells of the bone marrow. The disease is characterized by impaired blood cell formation, multiple tumor sites in the bone marrow, and widespread bone lesions that result in bone pain and fractures. Multiple myeloma typically strikes between ages 65 and 70, though there is a recent trend towards an earlier age of onset. Multiple myeloma is the second most common blood cancer. The Multiple

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Myeloma Research Foundation estimates that more than 40,000 Americans currently have this disease, and over 14,000 new cases of multiple myeloma are diagnosed annually in the US.

        There is a significant unmet medical need for effective treatments for multiple myeloma. Available therapies are intended to provide prolongation of life, and relief of pain and other symptoms, but are not curative. Moreover, existing treatments have serious side effects, and not all patients are candidates for treatment because of these side effects. Chemotherapy can prolong the median survival of multiple myeloma patients to 3 to 4 years. Even with good response to therapy and achievement of remission, all patients eventually experience relapse of their disease due to proliferation of resistant myeloma cells. Fewer than 5% of patients survive more than 10 years after diagnosis.

        Multiple myeloma is a radiation-sensitive cancer, with higher radiation doses producing greater response, though radiation therapy may be extremely toxic to the patient. Previously, chemotherapy with or without total body irradiation was used to treat multiple myeloma. The efficacy of both radiotherapy and chemotherapy is limited by the total dose that can be tolerated by the patient. Although higher doses of chemotherapy or radiotherapy potentially would eradicate resistant myeloma cells, this approach is not practical because current high-dose chemotherapy regimens already are at the limits of tolerance. We believe that if treatment could be localized, more effective doses could be delivered to the targeted cells, with fewer side effects.

        Currently, the primary treatment for multiple myeloma is chemotherapy, which may be followed by high-dose chemotherapy and stem cell transplantation. Because of its toxicity, only about 25% of patients are eligible for high-dose chemotherapy and stem cell transplantation. Prior to stem cell transplantation, the patient's peripheral blood stem cells are harvested and a conditioning regimen with high-dose chemotherapy is used to destroy the patient's bone marrow cells. Reconstitution of the bone marrow with the patient's own stem cells following chemotherapy allows normal blood cell production to resume. This treatment is difficult for patients to tolerate but currently provides the best chance for a prolonged remission. Depending on response criteria, complete remission (CR) is achieved in approximately 20% to 25% of transplant patients who responded well to initial chemotherapy. Achievement of a CR is associated with extended survival, although relapses occur frequently. Cytostatic agents with lower-toxicity profiles, including thalidomide, are in development for front-line therapy and for patients with relapsed disease. However, these agents generally provide a low incidence of CR.

        NeoRx is developing STR for use with high-dose chemotherapy and stem cell transplantation for treatment of multiple myeloma. STR is designed to deliver high doses of radiotherapy to tumor sites throughout the skeleton, producing both a direct therapeutic effect on disseminated disease sites, plus a general marrow-ablative effect. STR targets bone and adjacent marrow with a small-molecule bone-seeking agent, DOTMP, stably complexed with the beta-emitting radionuclide holmium-166. The high energy of holmium-166 allows optimal penetration of marrow and bone disease sites, while its short half-life minimizes the time required between treatment and reinfusion of the patient's stem cells. Upon administration, the STR compound localizes almost exclusively to the bone. This localization brings high doses of radiation in close proximity to multiple myeloma tumor cells. The radiation destroys the DNA of the cells, preventing the rapid replication associated with tumor growth. STR compound that does not localize to the bone is eliminated through the kidneys. NeoRx holds an exclusive worldwide license to the use of STR technology (except for Australia) from The Dow Chemical Company.

        NeoRx completed phase I/II trials of STR in combination with high-dose chemotherapy (melphalan) in patients with multiple myeloma, and initiated a phase III trial in 2000. The phase I/II trials demonstrated positive clinical activity of STR, including substantial response rates. The FDA placed the phase III trial on clinical hold after some phase I/II patients developed a serious delayed toxicity. In 2001 we convened an expert panel to conduct a comprehensive scientific peer review of the STR development program and data from phase I/II trials for multiple myeloma. The expert review of phase I/II data confirmed the positive clinical activity of STR in patients with multiple myeloma. Using patient response

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criteria established by the Autologous Blood and Marrow Transplant Registry (ABMTR), the panel noted substantial response rates among the 82 phase I/II patients treated according to the protocol, including a complete response rate of 35%. The data also suggested a survival advantage. The expert panel also assessed the safety profile of STR and specifically evaluated the delayed toxicity—hemorrhagic cystitis and thrombotic microangiopathy (TMA) with renal impairment, and identified strategies for their management.

        We have discussed with the FDA our revised plan for pivotal trials of STR in patients with refractory or relapsed multiple myeloma. We introduced our revised pivotal program to the FDA in the fourth quarter of 2001 and submitted a protocol for a new radiation dosimetry study. The FDA had requested that we conduct this study to collect additional radiation dosimetry data from a small number of patients to validate the revised methodology we propose to use to calculate radiation dose in our pivotal trials. In this study, we also plan to introduce an adjusted radiation dose and a revised administration regimen. Our planned dosimetry study is expected to enroll 12 to 16 patients at 2 to 4 clinical sites. We plan to begin enrolling multiple myeloma patients in this dosimetry study in the first quarter of 2002. Based on the results of this study and subject to approval from the FDA, we plan to resume the pivotal program for STR in the second half of 2002. We intend to discuss further the design of our pivotal program with the FDA in the first half of 2002. Our proposed design involves two pivotal trials. The initial pivotal trial is planned for patients with refractory multiple myeloma, followed by a smaller second pivotal trial in patients who experienced a relapse after stem cell transplantation. Our goal is to initiate the pivotal trial in patients with refractory multiple myeloma in the second half of 2002. We plan to use historical controls for our pivotal program, and we are validating sources for these control data. Our pivotal trials cannot begin until we receive authorization from the FDA.

        We anticipate that over the next several years, slightly fewer than half of all newly-diagnosed, treatment-eligible multiple myeloma patients will be candidates for high-dose chemotherapy and stem cell transplantation, following response to initial chemotherapy. An additional number of patients who are poor responders to initial chemotherapy, and relapsed patients undergoing second-line therapy, also may be candidates for transplantation. We believe that STR, if successfully developed and approved for commercial sale, may be appropriate for use as a conditioning regimen with high-dose chemotherapy for multiple myeloma patients undergoing stem cell transplantation. We also expect that cytostatic agents in development, such as thalidomide compounds, may gain use in initial therapy alongside chemotherapeutics, since they appear to have complementary tolerability profiles. Improvements in response to initial therapy may in turn increase the number of multiple myeloma patients eligible for stem cell transplantation.

        In addition to multiple myeloma, other cancers originating or present in the bone marrow, such as Ewing's sarcoma, and cancers that metastasize to the bone, such as breast and prostate cancer, are potential indications for STR. A phase I trial of STR in Ewing's sarcoma has been initiated under a physician-sponsored Investigational New Drug Application (IND). Ewing's sarcoma is a bone cancer that occurs in children. STR also potentially may be used in conditioning regimens prior to stem cell transplantation for patients with acute leukemias, Hodgkin's disease, or other hematological cancers.

        STR has been designated an Orphan Drug by the US Food and Drug Administration (FDA), which qualifies the Company for certain tax credit and marketing exclusivity provisions of the Orphan Drug Act (as amended). The manufacture and marketing of STR are subject to regulation for safety, efficacy and quality by the FDA and comparable authorities in other countries.

        In April 2001 NeoRx purchased a radiopharmaceutical manufacturing and distribution facility and certain other assets located in Denton, Texas from International Isotopes Inc. In addition to the manufacturing facility, NeoRx purchased existing equipment, documentation, and certain processes. NeoRx also retained approximately 40 employees from International Isotopes. The facility has achieved current Good Manufacturing Practices (cGMP) status and has been issued appropriate radiation permits by the State of

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Texas. The NeoRx radiopharmaceutical manufacturing facility in Denton is the principal manufacturing site for the proposed STR product for our planned multiple myeloma clinical trials. This facility is responsible for all aspects of the manufacture of STR, including process qualification, quality control, packaging and shipping. Additionally, we intend to explore certain select opportunities to provide contract manufacturing services to third parties. To date, we have not entered into material agreements.

        Previously, in January 2001, NeoRx and ABC Laboratories extended the existing agreement for ABC to manufacture our STR product for the proposed clinical trials in multiple myeloma. ABC had supplied doses of STR for the phase I/II clinical trials. ABC has been qualified for all aspects of the manufacture of STR, including process qualification, quality control, packaging and shipping, and is under contract to NeoRx to continue to provide these operations through the end of June 2002. We plan to undertake all aspects of STR manufacture and shipment through our Denton, Texas facility, and intend to maintain our relationship with ABC as a back-up supplier through the duration of the existing manufacturing agreement.

        In December 2001 we entered into a contract with the University of Missouri Research Reactor facility group (MURR) to supply holmium-166. This supply contract follows a previous arrangement in which MURR provided NeoRx supplies of holmium-166 for the STR product in development. MURR is responsible for the manufacture of holmium-166, including process qualification, quality control, packaging and shipping, from its Columbia, Missouri reactor facility.

Pretarget® Product Development Platform

        Pretarget® technology is a broad and versatile development platform for targeted therapeutics that deliver intense doses of anti-cancer agents to tumor cells, while largely sparing healthy tissues. We have selected two highly prevalent types of cancer, non-Hodgkin's lymphoma and adenocarcinoma, as initial clinical indications for development of Pretarget therapeutic products. Non-Hodgkin's lymphoma (NHL) is a heterogeneous group of cancers of immune system cells called lymphocytes; most NHL occurs in B lymphocytes (B cells). Lymphoma arises when a lymphocyte undergoes malignant transformation and begins to grow abnormally, dividing and forming tumors. The various NHL subtypes are distinguished by their rate of growth (ranging from indolent to aggressive), plus other clinical and cellular characteristics. Follicular lymphoma is the most common form of indolent NHL. The median survival for this disease is 7 to 10 years; it is rarely cured. Diffuse large cell lymphoma (DLCL) is the most common form of aggressive NHL. Untreated, this disease advances rapidly, though some patients, especially those with localized disease, can achieve a cure with chemotherapy. The overall five-year survival rate for DLCL is 50% to 60%. NHL is the fifth most common form of cancer. According to the American Cancer Society (ACS), over 56,000 new cases are diagnosed annually in US, and approximately 26,000 patients die from the disease each year.

        Adenocarcinoma is a common type of solid-tumor cancer that arises from epithelial cells. These cells form the lining of the gastrointestinal system, and ducts and glands of the pancreas, prostate, breast, ovary, and other organs. According to data from the ACS, taken together, cancers of these organs account for over 500,000, or slightly less than half, of all new cancer cases diagnosed annually in the US, and are among the leading causes of cancer deaths. Prostate cancer alone accounts for close to 200,000 of these new cancer cases each year. Pancreatic cancer is a particularly deadly form of adenocarcinoma, accounting for an estimated 29,000 new cancer cases and almost an equal number of deaths in 2001 alone. Treatments and outcomes for these cancers vary. The main treatment option is usually surgery, which is often accompanied by chemotherapy or radiation. These treatments can be curative, but generally are effective only if the cancer is detected early. Five-year survival rates for these cancers (all stages) range from 4% for pancreatic cancer, to 50% for ovarian, 61% for colorectal, 85% for breast and 95% for prostate cancer.

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        Chemotherapy and external beam radiation widely used to treat NHL and adenocarcinomas are toxic to healthy cells. Moreover, the optimal dose for killing cancer cells must often be reduced to avoid intolerable damage to normal cells and vital organs. Delivery of effective doses of therapeutics directly to the sites of disease is the central concept in targeted therapy. Recently, antibody targeting agents have been developed to carry radionuclides to tumor sites. These antibody constructs are relatively large molecules that circulate and reach their target slowly. While antibody targeting agents gradually accumulate at the targeted tissue, normal cells are exposed to the toxic therapeutic material as it circulates throughout the body. Only a very small percentage of the dose administered actually reaches the target, with the remainder circulating and taken up by non-target, normal tissues. The relatively slow circulation and clearance of antibody targeting agents, and the potential for damage to healthy cells and tissues, limits the dose that can be administered safely.

        The monoclonal antibody Rituxan® (Rituximab), a whole, non-radiolabeled antibody product developed by IDEC Pharmaceuticals and Genentech, gained FDA approval in 1997 for treatment of relapsed or refractory low-grade or follicular NHL, and is the first monoclonal antibody product approved in the US for cancer therapy. Rituxan targets the CD-20 antigen found on most mature B cells and B lymphoma cells. Alone and in combination with chemotherapy, Rituxan has achieved notable improvements in patient response rates over conventional therapies for NHL, and is relatively well tolerated. Building on the initial clinical success of Rituxan, IDEC has developed a radioimmunotherapeutic consisting of the anti-CD20 antibody chemically linked to the radionuclide yttrium-90, as a cytotoxic agent. This product (Zevalin™, which received FDA approval for marketing in February 2002) and similar whole-antibody radioimmunotherapeutics in development by other companies have provided some promising results in clinical trials. However, the majority of patients treated with conventional radiolabeled antibodies eventually relapse because the relatively low uptake of radiolabeled antibody in target tissues limits the dose that can be safely administered. Other potential disadvantages of antibody-radionuclide conjugates are the potential for breakdown of the antibody molecule from exposure to radioactivity, the possibility of dissociation of the radionuclide from the antibody before or after patient administration, and the variability and inefficiency of antibody radiolabeling processes.

        NeoRx is working to improve on this first-generation radioimmunotherapy (RIT) technology with its Pretarget® platform for development of targeted therapeutics. Pretarget technology provides the means to maximize the dose delivered to sites of disease, while minimizing exposure of normal tissues and organs to radiation. The multi-step Pretarget approach uncouples the targeting agent from the cytotoxic therapeutic agent, with separate administration of a fusion protein to target tumor cells, a clearing agent to remove unbound fusion protein, and a small-molecule therapeutic that attaches rapidly to the pre-localized fusion protein to destroy tumor cells. Pretarget technology can incorporate a wide range of specific fusion proteins and other targeting agents, and various therapeutic agents, including radiotherapeutics and chemotherapeutics, to address various cancers and other diseases. The USPTO has issued to NeoRx over 25 patents related to Pretarget technology; we also have additional US and foreign applications pending. In addition, we have licensed the rights to certain other patents relating to Pretarget products in development. We expect to enter into additional licensing agreements in the future with third parties for technologies that may be useful or necessary for the development and/or manufacture of potential Pretarget® products. We anticipate that such licenses, if any, will be available on commercially reasonable terms. If such licenses are not available, we may be unable to design around necessary technology patented by others in a cost-effective manner, if at all.

        Our proprietary fusion protein technology provides the means to readily produce a broad range of specific targeting agents for Pretarget therapies to address a variety of cancers and other diseases. Fusion proteins are recombinant proteins comprised of specific antibody binding domains genetically fused to streptavidin, a protein that binds the small molecule biotin with very high specificity and affinity. When the fusion protein is administered to a patient by intravenous infusion, the antibody binding domain of the fusion protein attaches to the antigen it recognizes on the tumor cells, leaving the streptavidin "tail"

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exposed on the surface to bind with the biotin-conjugated therapeutic agent. Simpler to produce than monoclonal antibodies, fusion proteins are synthesized in high-yield microbial production systems to a high degree of consistency and purity. Individual fusion proteins form tetramers, multiplying their tumor-targeting ability. A wide variety of fusion proteins can be made by inserting genes for specific antibody binding domains into the genetic construct for fusion protein production. Numerous monoclonal antibodies that specifically bind tumor-specific antigens have been developed and characterized. We have accessed the wealth of information available on tumor-specific antigens and antibodies to select and develop fusion proteins specific for NHL, adenocarcinoma, T-cell leukemias and lymphomas, and various other cancer types. In addition to fusion protein technology, our Pretarget® platform includes small-molecule targeting agents and other forms of targeting agents, which we also are considering for development.

        Another important and distinguishing feature of our Pretarget approach is our proprietary clearing agent technology. The Pretarget clearing agent is composed of galactose, a type of sugar, complexed with biotin. Administered after the fusion protein has sufficiently accumulated on tumor cells, the biotin-galactose clearing agent rapidly scavenges and removes unbound targeting agent from circulation via uptake and processing by the liver. This clearing step, unique to Pretarget technology, further improves the tumor-specific localization of the fusion protein and reduces the potential toxicity of the cytoxic therapeutic agent in non-target tissues.

        The therapeutic agent is administered in the last step of Pretarget therapy. Rather than delivering the cytotoxic therapeutic agent by means of a relatively large antibody construct, Pretarget therapy uses the small molecule biotin as the carrier. In the Pretarget therapies we currently are developing, this therapeutic is the beta-emitting radionuclide yttrium-90, complexed with biotin via the chelating agent, DOTA. This small therapeutic molecule circulates quickly and binds with high specificity and affinity to the streptavidin tails of the prelocalized fusion protein, efficiently delivering saturating doses of the radionuclide directly to tumor cells. This mode of delivery is intended to provide homogeneous distribution of therapeutic to disseminated or metastasized tumor cells. The high-energy beta emissions of yttrium-90 penetrate the targeted cells and those in the immediate area to destroy the tumor bed. Unbound biotin-yttrium-90 therapeutic is rapidly eliminated through the kidneys, with a relatively short duration of radiation burden on the excretory organs. The short half-life of yttrium-90 (64 hours) allows the radiotherapeutic agent, as well as the non-radiolabeled targeting and clearing agents, to be administered on an outpatient basis.

        The multi-step Pretarget approach may provide for safer administration of intense doses of therapeutic to sites of disease. Research published in 2001 in the journal Blood (98[8]: 2535-2543) compared anti-CD20 radioimmunotherapy (RIT) using the Pretarget approach to RIT with conventional radiolabeled anti-CD20 antibodies in a murine model of human NHL. The study demonstrated superior biodistribution of radioactivity, reduced toxicity and enhanced therapeutic efficacy with the Pretarget approach in this model, and indicated that Pretarget therapy may enable substantial dose escalation of CD20-directed RIT, for more durable remissions in patients with NHL.

        NeoRx has two Pretarget product candidates in clinical development. The first, Pretarget® Lymphoma, employs a fusion protein with the targeting specificity of the well-characterized and clinically successful anti-CD20 monoclonal antibody, to deliver the radionuclide yttrium-90. NHL is a very radiosensitive cancer; response rates correlate with radiation dose intensity. The radiosensitivity and typically disseminated nature of NHL, and the significant need for better and more durable responses to therapy, make NHL an excellent potential indication for Pretarget therapy.

        In late 2001 NeoRx completed enrollment in a phase Ia study of Pretarget® Lymphoma in heavily pretreated NHL patients who had responded poorly to standard therapy. Objectives of the study are to evaluate safety, pharmacokinetics, biodistribution, dosage and timing of administration of the Pretarget components. In the phase Ia trials, patients were administered one of two dose levels of the anti-CD20 fusion protein, followed by infusion of the clearing agent, and the yttrium-90 radiotherapeutic. Evaluation

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of the data and patient monitoring in this phase Ia trial are ongoing. Preliminary results indicate that the therapy is usually well-tolerated. The estimated dose of yttrum-90 delivered to the patients with the Pretarget regimen was comparable to that previously achieved with directly radiolabeled whole anti-CD20 antibody; however, the estimated doses to the whole body and bone marrow were substantially lower. These preliminary results indicate the potential of Pretarget Lymphoma to deliver clinically effective doses of a radiotherapeutic, with reduced exposure of healthy tissues. NeoRx plans to further evaluate Pretarget® Lymphoma in phase I/II clinical trials in NHL patients with escalating doses of the yttrium-90, based on successful completion of the phase Ia study. We plan to initiate a phase II clinical trial for Pretarget® Lymphoma in patients with diffuse large cell lymphoma (DLCL), and in patients with follicular lymphoma, by year-end 2002. Development of the anti-CD20 fusion protein has been funded in part by a competitive award from the Small Business Innovation Research (SBIR) program of the National Cancer Institute. This SBIR grant is for a total of $1.1 million, payable over the period 2001 through 2002.

        We also are developing a second Pretarget® product candidate, Pretarget® Carcinoma, which uses a fusion protein with the specificity and avidity of the CC49 monoclonal antibody that binds the well-characterized TAG-72 antigen on adenocarcinomas (including many gastrointestinal, pancreatic, prostate, breast, ovary and other tumors). Pretarget® Carcinoma also delivers yttrium-90 to tumor cells. Adenocarcinomas frequently are diagnosed after they already have metastasized, which makes treatment with conventional therapies difficult, and worsens the prognosis. Some adenocarcinomas are relatively radioresponsive. We believe that Pretarget® technology may be well-suited to more effectively and safely treat adenocarcinomas, especially where metastases have occurred. Moreover, we anticipate that if successfully developed and approved for marketing, Pretarget® Carcinoma may be used in combination with chemotherapy. Many widely used chemotherapeutics, such as 5-fluorouracil and gemcitabine, increase the radiation sensitivity of tumor cells; thus it is possible that a further increase in the efficacy of Pretarget® Carcinoma may be achieved with combination therapy. NeoRx initiated a phase Ia study of Pretarget® Carcinoma in patients with gastrointestinal adenocarcinoma in late 2001. The phase Ia study is designed to evaluate safety, pharmacokinetics, biodistribution, dosage and timing of administration of the anti-TAG-72 fusion protein, clearing agent, and the yttrium-90 therapeutic agent. We plan to start a phase II clinical trial in one adenocarcinoma indication by year-end 2002. In addition to gastrointestinal carcinoma, we are considering pancreatic, breast and prostate adenocarcinomas as potential indications for Pretarget® Carcinoma.

        NeoRx also is evaluating and prioritizing fusion proteins, including an anti-Tac fusion protein that is specific for IL-2R (CD25), an antigen expressed in cutaneous T-cell lymphoma, adult T-cell leukemia, anaplastic large cell lymphoma (ALCL), and other malignancies. We plan in the fourth quarter of 2002 to select an additional fusion protein for advancement into clinical trials, with the goal of initiating a clinical program early in 2003.

        We believe that NeoRx has the capacity and expertise to produce cGMP supplies of Pretarget® components in-house for phase I and phase II clinical development. We currently are conducting pilot manufacturing of the product components, including fermentation and purification of the anti-CD20 and anti-TAG-72 fusion proteins, synthesis of the DOTA-biotin, synthesis of the clearing agent, and aseptic fill, and radiolabeling of DOTA-biotin with yttrium-90. We plan to contract with third-party suppliers for commercial quantities of some of these Pretarget® components for subsequent clinical development. Yttrium-90 is available from several commercial sources in the US and Europe. We have qualified two of these sources to supply this radionuclide for our Pretarget® products. We intend to establish longer-term supply agreements with one or more yttrium-90 producers for phase II and III clinical trials. The radiolabeling of the DOTA-biotin compound is currently performed at our manufacturing facility in Seattle. We plan to transfer the radiolabeling process to our radiopharmaceutical facility in Denton, Texas for phase III clinical trials.

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Patents and Proprietary Rights

        The Company's policy is to aggressively protect its proprietary technology. We have filed applications for US and foreign patents on many aspects of our technology. We currently have more than 100 issued US patents in our portfolio.

        NeoRx has been awarded over 25 US patents related to our Pretarget® technology, and has additional US and foreign applications pending. We have also licensed the rights to certain other patents relating to Pretarget® products in development.

        In addition, we have an exclusive worldwide license, except in Australia, from The Dow Chemical Company to the Skeletal Targeted Radiotherapy (STR) product in development. The STR portfolio includes US patents covering the STR product composition and its use, with corresponding patent coverage in most jurisdictions in the world.

        Risks associated with the protection of our patents and other proprietary technologies are described under the heading "Risk Factors" above. Pending or future applications of NeoRx or its collaborators will not necessarily result in issued patents. Moreover, the current patents owned by or licensed to NeoRx may not provide substantial protection or commercial benefit. In addition to patent protection, we rely upon trade secrets, un-patented proprietary know-how and continuing technological innovation to develop and maintain our competitive position. Third parties could acquire or independently develop the same or similar technology, or our issued patents or those licensed could be circumvented, invalidated or rendered obsolete by new technology. Third parties also could gain access to or disclose our proprietary technology, and we may be unable to meaningfully protect our rights in such non-patented proprietary technology.

        The rapid rate of development and the intense research efforts throughout the world in biotechnology, the significant lag time between the filing of a patent application and its review by appropriate authorities and the lack of significant legal precedent involving biotechnology inventions make it difficult to predict accurately the breadth or degree of protection that patents will afford the Company's or its licensees' biotechnology products or their underlying technology. It is also difficult to predict whether valid patents will be granted based on biotechnology patent applications or, if such patents are granted, to predict the nature and scope of the claims of such patents or the extent to which they may be enforceable.

        Under US law, although a patent has a statutory presumption of validity, the issuance of a patent is not conclusive as to validity or as to the enforceable scope of its claims. Accordingly, the patents owned or licensed by NeoRx could be infringed or designed around by third parties, and third parties could obtain patents that the Company would need to license or design around.

        It is the Company's policy to respect the valid patent rights of others. We have obtained patent licenses from various parties covering technologies relating to our proposed products. We expect to enter into additional license agreements in the future with third parties for technologies that may be useful or necessary for the development and/or manufacture of the our products. We anticipate that such licenses, if any, will be available on commercially reasonable terms. If such licenses are not available, we may be unable to design around necessary technology patented by others in a cost-effective manner, if at all.

Competition

        We face significant competition from emerging and established biotechnology and pharmaceutical companies. Many biotechnology companies, including Immunomedics, Inc., IDEC Pharmaceuticals Corp. and Corixa Corp., have corporate partnership arrangements with large, established companies to support research, development and commercialization efforts of products that may be competitive with those being developed by NeoRx. In addition, a number of established pharmaceutical companies, including GlaxoSmithKline, Amersham PLC, Mallinckrodt, Inc. (Tyco Healthcare) and Bristol-Myers Squibb Co., are developing proprietary technologies or have enhanced their capabilities by entering into arrangements

19

with, or acquiring, companies with proprietary monoclonal antibody-based technology or other technologies applicable to cancer therapy. Many of our existing or potential competitors have or have access to substantially greater financial, research and development, marketing and production resources than those of NeoRx.

        We also expect to face increasing competition from universities and other non-profit research organizations. These institutions carry out a significant amount of research and development in the field of antibody-based technology. These institutions are becoming increasingly aware of the commercial value of their findings and more active in seeking patent and other proprietary rights, as well as licensing revenues.

        Our cancer therapy products under development are designed for the treatment of blood-born cancers, metastatic cancers or where there is a very high statistical risk that the cancer has spread. We anticipate that the principal competition in this type of cancer treatment will come from existing chemotherapy, hormone therapy, biological and other therapies that are designed to treat the same cancer cancers. We are initially focusing our STR product on the treatment of multiple myeloma. Celgene Corp.'s thalidomide product is in development for treatment of multiple myeloma. Other therapeutics with anti-angiogenic properties and other modes of action are in clinical development for treatment of multiple myeloma. Some competitors have adopted product development strategies targeting cancer cells with antibodies. IDEC Pharmaceuticals has a monoclonal antibody product (Rituxan®) approved for treatment of non-Hodgkin's lymphoma (NHL), and a radioimmunotherapeutic consisting of an anti-CD20 antibody chemically linked to the radionuclide yttrium-90. This product, Zevalin™, received FDA approval for marketing in February 2002. Immunomedics and Corixa have radioimmunotherapy (RIT) products for NHL in late-stage development. Other companies may develop and introduce products and processes competitive with or superior to those of NeoRx. Further, the development by others of new disease treatment or prevention products could render our technology and products under development less competitive, uneconomical or obsolete.

        Timing of market introduction and health-care reform, both uncertainties, will affect the competitive position of our potential products. We believe that competition among products approved for sale will be based, among other things, on product safety, efficacy, reliability, availability, third-party reimbursement, price, and patent protection.

Government Regulation and Product Testing

        The manufacture and marketing of our proposed products and our research and development activities are subject to extensive regulation for safety, efficacy and quality by numerous government authorities in the US and other countries. In the US, drugs and biologics are subject to rigorous regulation by the FDA. The Federal Food, Drug and Cosmetic Act of 1976, as amended, and the regulations promulgated there under, and other federal and state statutes and regulations govern, among other things, the testing, manufacture, safety, efficacy, labeling, storage, record keeping, approval, advertising and promotion of our proposed products. Product development and approval within this regulatory framework take a number of years to accomplish, if at all, and involve the expenditure of substantial resources.

        The steps required before a pharmaceutical product may be marketed in the United States include:

•

preclinical laboratory tests, in vivo preclinical studies and formulation studies;



•

submission to the FDA of an Investigational New Drug Application (IND), which must become effective before clinical trials can commence;



•

adequate and well-controlled clinical trials to establish the safety and efficacy of the drug;



•

the submission of a Biologic License Application (BLA) or New Drug Application (NDA) to the FDA; and



•

FDA approval of the BLA or NDA prior to any commercial sale or shipment of the drug.

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        In addition to obtaining FDA approval for each product, each domestic drug-manufacturing establishment must be registered with, and inspected by, the FDA. Domestic manufacturing establishments are subject to biennial inspections by the FDA and must comply with current Good Manufacturing Practice (cGMP) regulations, which are enforced by the FDA through its facilities inspection program for biologics, drugs and devices. To supply products for use in the US, foreign manufacturing establishments must comply with cGMP regulations and are subject to periodic inspection by the FDA or by corresponding regulatory agencies in such countries under reciprocal agreements with the FDA.

        Preclinical studies include laboratory evaluation of product chemistry and formulation, as well as animal studies, to assess the potential safety and efficacy of the proposed product. Laboratories that comply with the FDA regulations regarding Good Laboratory Practice must conduct preclinical safety tests. The results of the preclinical studies are submitted to the FDA as part of an IND and are reviewed by the FDA prior to commencement of clinical trials. Unless the FDA provides comments to an IND, the IND will become effective 30 days following its receipt by the FDA. Submission of an IND does not assure FDA authorization to commence clinical trials.

        Clinical trials involve the administration of the investigational new drug to healthy volunteers or to patients under the supervision of a qualified principal investigator. Clinical trials are conducted in accordance with the FDA's Protection of Human Subjects regulations and Good Clinical Practices under protocols that detail the objectives of the study, the parameters to be used to monitor safety and the efficacy criteria to be evaluated. Each protocol must be submitted to the FDA as part of the IND. Further, each clinical study must be conducted under the auspices of an independent Institutional Review Board at the institution where the study will be conducted. The Institutional Review Board will consider, among other things, ethical factors, the safety of human subjects and the possible liability of the institution.

        Clinical trials are typically conducted in three sequential phases, but the phases may overlap. In phase I, the drug is tested for:

•

safety (adverse effects);



•

dosage tolerance;



•

metabolism;



•

distribution;



•

excretion; and



•

pharmaco-dynamics (clinical pharmacology).

        In phase II, a limited patient population is studied to:

•

determine the efficacy of the drug for specific, targeted indications;



•

determine dosage tolerance and optimal dosage; and



•

identify possible adverse effects and safety risks.

        If a compound is found to have potential efficacy and to have an acceptable safety profile in phase II clinical trials, phase III clinical trials are undertaken to further evaluate clinical efficacy and to further test for safety within an expanded patient population at geographically dispersed clinical study sites. With respect to any of our proposed products subject to clinical trials, there can be no assurance that phase I, phase II or phase III studies will be completed successfully within any specific time period, if at all. Furthermore, the Company or the FDA may suspend clinical trials at any time if it determines that the subjects or patients are being exposed to an unacceptable health risk.

        The results of the pharmaceutical development, preclinical studies and clinical trials are submitted to the FDA in the form of a Biologic License Application (BLA), or New Drug Application (NDA), for

21

approval of the marketing and commercial shipment of the drug. The testing and approval processes are likely to require substantial cost, time and effort, and there can be no assurance that any approval will be granted on a timely basis, if at all. The FDA may deny a BLA or an NDA if applicable regulatory criteria are not satisfied, may require additional testing or information, or may require post-market testing and surveillance to monitor the safety of the product. If regulatory approval is granted, such approval may entail limitations on the indicated uses for which the product may be marketed. The FDA may withdraw product approvals if compliance with regulatory standards is not maintained or if problems occur following initial marketing. Among the conditions for BLA or NDA approval is the requirement that the prospective manufacturers' quality control and manufacturing procedures conform to cGMP regulations. In complying with standards set forth in these regulations, manufacturers must continue to expend time, money and effort in the areas of production and quality control to ensure full technical compliance.

EMPLOYEES

        As of February 1, 2002, NeoRx had 112 full-time employees and seven part-time employees. Of these full-time employees, 18 hold PhD degrees, four hold MD degrees, and one holds a DVM degree. Of the total, 86 employees were engaged in research, development, clinical or manufacturing activities, and 26 were employed in general administration.

        We consider our relations with employees to be good. None of the Company's employees is covered by a collective bargaining agreement.

Item 2.    PROPERTIES

        NeoRx occupies approximately 36,000 square feet of office, laboratory and manufacturing space at 410 West Harrison Street, Seattle, Washington, under a lease that expires May 31, 2006. In July 2000, we entered into a facilities sublease agreement with F-5 Networks for approximately 14,700 square feet of office space located at 501 Elliot Avenue West Building 3, Floor 2, under a lease agreement that expires October 31, 2003. We have given notice of termination of this lease and have entered into a lease agreement for approximately 20,000 square feet of office space located at 300 Elliott Avenue West, adjacent to our facility at 410 West Harrison Street. This lease agreement expires June 1, 2009.

        A portion of our Seattle facilities is used for pilot manufacturing to produce certain of our products under development for clinical trials. We believe that the production capacity of our pilot facility is adequate to satisfy our phase I/II clinical trial requirements for our Pretarget® product candidates in development. The facility passed an FDA inspection for these purposes in 1993 and a Washington State Board of Pharmacy inspection in January 2002.

        In April 2001 NeoRx purchased from International Isotopes Inc. a radiopharmaceutical manufacturing facility located on 12 acres in Denton, Texas. The facility has achieved current Good Manufacturing Practice (cGMP) status and has been issued appropriate radiation permits from the State of Texas. The main building is approximately 88,000 square feet and houses approximately 12,000 square feet of cleanrooms. The area is used for radiopharmaceutical manufacturing, quality control laboratories, and support functions. Current capabilities include terminal and aseptic processing and filling of radiopharmaceuticals. The facility was designed to allow for future expansion.

        We believe that our facilities are in good condition and are adequate for all present uses.

Item 3.    LEGAL PROCEEDINGS

        Not Applicable.

Item 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        Not Applicable.

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PART II

Item 5.    MARKET FOR REGISTANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

        The Company's common stock is traded on the NASDAQ National Market under the symbol NERX. The following table sets forth, for the periods indicated, the high and low sales prices for common stock as reported by NASDAQ. These quotations reflect inter-dealer prices without retail mark-up, markdown or commission, and may not necessarily represent actual transactions.

	High		Low
2001
First Quarter	$	12.50	$	3.25
Second Quarter		7.25		3.00
Third Quarter		4.01		2.00
Fourth Quarter		6.80		2.51
2000
First Quarter	$	70.00	$	3.50
Second Quarter		20.25		9.63
Third Quarter		26.25		14.63
Fourth Quarter		25.81		4.25

        There were approximately 884 shareholders of record as of February 25, 2002. This figure does not include the number of shareholders whose shares are held on record by a broker or clearing agency, but includes such a brokerage house or clearing agency as one holder of record.

        The Company has not paid any cash dividends on the common stock since its inception and does not intend to pay cash dividends on the common stock in the foreseeable future.

Recent Sales of Unregistered Securities.

        The following securities of the Company were sold by the Company within the past three years in reliance on exemptions from registration under the Securities Act of 1933, as amended (the Securities Act).

        Warrants.    In connection with an agreement with a company for corporate communications services, the Company on August 15, 2001, issued a two-year warrant to purchase 15,000 shares of Common Stock at an exercise price of $3.51 per share. The warrant will expire in 2003.

        In connection with the agreement to purchase the manufacturing facility in Denton, Texas, the Company on April 19, 2001, issued to International Isotopes Inc. a three-year warrant to purchase up to 800,000 shares of NeoRx Common Stock at a purchase price of $10 per share. The warrant is exercisable at any time during the term of the warrant. If at any time during the term of the warrant the closing price of the Company's Common Stock equals or exceeds $20 per share, the Company at any time thereafter will have the right to acquire all or any portion of the shares issuable under the warrant at a nominal amount. The Company must give at least 15 days' written notice of its election to purchase the shares issuable under the warrant and the purchase date on or after which it may consummate such purchase. The holder of the warrant may exercise the warrant through the payment of the exercise price prior to the purchase date set forth in the notice. In July 2001, International Isotopes transferred these warrants to certain of its preferred shareholders. On July 25, 2001, the Company filed with the Securities and Exchange Commission a registration statement to register the shares underlying the warrant. The registration statement was made effective on August 8, 2001.

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        In connection with a line of credit agreement, the Company on February 2, 2000, issued one four-year warrant to purchase 75,000 shares of Common Stock at an exercise price of $6.7734 per share. The warrant will expire in 2004.

        In connection with an agreement with a company for corporate communications services, the Company on February 1, 2000, issued four two-year warrants to purchase an aggregate of 80,000 shares of Common Stock at exercise prices ranging from $6.00 to $9.00 per share. The warrants expired February 1, 2002.

        In connection with an agreement with a company for corporate communications services, the Company on October 14, 1999, issued one five-year warrant to purchase 150,000 shares of Common Stock at an exercise price of $1.6875 per share, of which 69,000 shares were exercised during 2001. The warrant will expire in 2004.

        In each case above, the warrant was issued in reliance on Section 4(2) of the Securities Act. The purchaser represented, in connection with the purchase of the warrant, that it was an accredited investor as defined in Regulation D under the Securities Act.

        Private Placements of Common Stock:    On April 14, 2000, NeoRx issued a total of 1,727,045 shares of its Common Stock to a total of 11 purchasers and received net proceeds of $17,978,967. On August 25, 2000, NeoRx issued a total of 2,450,000 shares of its Common Stock to a total of 8 purchasers and received net proceeds of $35,627,500. The shares in both of these transactions were issued in reliance on Section 4(2) of the Securities Act. All purchasers in each transaction represented, in connection with the purchase of its shares, that it was an accredited investor as defined in Regulation D under the Securities Act. The Company has filed Registration Statements on Form S-3 to register the shares issued for resale by the purchaser. Adams Harkness & Hill acted as the placement agent in both of these offerings and received aggregate commissions of $1,814,406. In addition, Roth Capital acted as a placement agent in the April 14, 2000 private placement and received commissions of $237,469.

        The Company intends to use the net proceeds from the transactions described above to advance its research and development programs, including its Skeletal Targeted Radiotherapy (STR) and Pretarget® product candidates, as well as for other general corporate purposes.

Item 6.    SELECTED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA)

	Years Ended December 31,
	2001			2000			1999			1998			1997
Consolidated Statement of Operations Data:
Revenues	$	2,873		$	3,549		$	591		$	9,087		$	10,352
Operating expenses		29,020			21,594			15,354			15,378			14,647
Loss from operations		(26,147	)		(18,045	)		(14,763	)		(6,291	)		(4,295	)
Net loss		(23,802	)		(11,402	)		(11,951	)		(4,449	)		(2,550	)
Net loss applicable to common shareholders		(24,303	)		(11,905	)		(12,459	)		(4,975	)		(5,619	)
Net loss per common share—basic and diluted	$	(0.92	)	$	(0.50	)	$	(0.59	)	$	(0.24	)	$	(0.31	)
Weighted average common shares outstanding—basic and diluted		26,402			23,853			21,009			20,907			18,065
Consolidated Balance Sheet Data:
Cash and cash equivalents	$	4,097		$	8,389		$	3,752		$	1,910		$	1,949
Investment securities		29,484			49,189			15,289			28,242			31,760
Working capital		31,123			59,315			16,664			28,807			33,775
Total assets		51,028			64,458			20,765			32,441			36,321
Note payable		5,696			—			—			1,195			1,199
Shareholders' equity	$	41,715		$	62,245		$	17,822		$	29,044		$	33,368

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Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Introduction

        The following discussion of results of operations, liquidity and capital resources, contains forward-looking statements that involve risks and uncertainties. As described in the "Cautionary Statement Regarding Forward Looking Statements" at the beginning of this report, NeoRx's actual results may differ materially from the results discussed in the forward-looking statements. Factors that might cause or contribute to such differences include those discussed herein and in the section entitled "Risk Factors."

Critical Accounting Policies

        Basis of Revenue Recognition:    The Company does not have any significant revenue sources that will continue into 2002. On occasion the Company derives revenue from licensing its non-strategic patent technologies and government grants. Pursuant to the Securities and Exchange Commission Staff Accounting Bulletin No. 101, revenues from collaborative agreements are recognized as earned as the Company performs research activities under the terms of each agreement. Billings in excess of amounts earned are classified as deferred revenue. Non-refundable upfront technology license fees, where the company is providing continuing services related to product development, are deferred. Such fees are recognized as revenue over the product development periods based on estimated total development costs. For a detailed description of the Company's revenue recognition policy, refer to Note 2, Summary of Significant Accounting Policies.

Results of Operations

Year Ended December 31, 2001 Compared with December 31, 2000

        The Company's revenues for 2001 totaled $2.9 million, which included $1.2 million from the receipt of stock warrants from a prior licensing agreement with Angiotech Pharmaceuticals, Inc., $1.2 million from government grants and $0.5 million from other licensing agreements and a facilities lease agreement. The Company's revenues for 2000 totaled $3.5 million, which included $3.1 million from licensing agreements and $0.4 million from government grants. The majority of the revenue in 2000 was from Theseus Corporation and Angiotech Pharmaceuticals, Inc. for non-strategic patent licensing agreements entered into in 1998. The Company does not have any significant revenue sources that will continue into 2002. On occasion the Company derives revenue from licensing its non-strategic patent technologies, and government grants. Pursuant to SAB 101, the timing and amount of license revenue recognized during an accounting period is determined by the nature of the contractual provisions included in the license arrangement. For a detailed description of the Company's revenue recognition policy, refer to Note 2, Summary of Significant Accounting Policies.

        The Company's total operating expenses increased 34% to $29.0 million in 2001 from $21.6 million in 2000. Research and development expenses increased 34% from $16.0 million in 2000 to $21.4 million in 2001. The increase in research and development expenses was primarily the result of the addition of operating costs for the Company's radiopharmaceutical manufacturing facility in Denton, Texas, which was acquired on April 19, 2001. Research and development expenses also increased as the result of increased spending for salaries, supplies consulting services and licensing fees for the Company's Pretarget® Lymphoma and Pretarget® Carcinoma projects. Research and development expenses are shown net of reimbursements received under collaborative agreements for payments made to NeoRx by third parties. The Company received reimbursements from collaborative agreements of $0.4 million in both 2001 and 2000. General and administrative expenses increased 35% to $7.6 million in 2001 compared to $5.6 million in 2000. The increase in general and administrative expenses largely resulted from accrued compensation costs from the departure of the former CEO, who resigned on July 31, 2001. General and administrative expenses also increased due to the addition of new staff and consulting services.

25

        We expect research and development expenses to continue to increase significantly due to planned clinical trials for STR, increased spending for our Pretarget® clinical trials for lymphoma, Pretarget Carcinoma and a third Pretarget technology. Increasing costs for STR clinical trials are also dependant upon the approval of the FDA to resume the pivotal program for STR. Costs for general and administrative are also expected to increase with the addition of administrative staff and services in 2001 and 2002.

        Other income in 2001 totaled $2.3 million, which consisted primarily of interest income from investment securities. Other income in 2000 totaled $6.6 million and included a $2.9 million gain on the sale of the Company's shares of Angiotech Pharmaceuticals, Inc. during the first quarter of 2000, $3.0 million of interest income and a $0.5 million gain recorded from the receipt of stock of North American Scientific, Inc. through their acquisition of Theseus LTD.

        Preferred dividends were $0.5 million in 2001 and 2000. Preferred dividends in 2001 and 2000 are related to payment of dividends on Series 1 Preferred Stock.

Year Ended December 31, 2000 Compared with December 31, 1999

        The Company's revenues for 2000 totaled $3.5 million, which included $3.1 million from licensing agreements and $0.4 million from government grants. The majority of the revenue in 2000 was from Theseus Corporation and Angiotech Pharmaceuticals, Inc. for non-strategic patent licensing agreements entered into in 1998. The Company's revenues for 1999 totaled $0.6 million, which consisted primarily of license fees.

        The Company's total operating expenses were $21.6 million for 2000 and $15.4 million for 1999. Research and development expenses increased 39% from $11.5 million in 1999 to $16.0 million in 2000. The increase in research and development expenses was primarily due to increased costs for patient therapy, clinical trial expenses and manufacturing development relating to the Company's STR project. Research and development expenses for the Company's Pretarget® project also increased in 2000, primarily due to costs associated with our Pretarget® Lymphoma phase I/II study. Research and development expenses are shown net of reimbursements received under collaborative agreements for payments made by NeoRx to third parties. During 2000, the Company received $0.4 million in reimbursements. In 1999, reimbursements from collaborative agreements totaled $0.3 million. General and administrative expenses increased 44% to $5.6 million in 2000 compared to $3.9 million in 1999. The increase in general and administrative expenses is principally due to increased expenses for personnel, outside consulting services, recruiting and legal services.

        Other income in 2000 included a $2.9 million gain on the sale of the Company's shares of Angiotech Pharmaceuticals, Inc. during the first quarter of 2000 and a $0.5 million gain recorded from the receipt of stock of North American Scientific, Inc. from their acquisition of Theseus LTD. Other income for 1999 included $1.9 million from final payments under a prior agreement. Other income also included interest income for 2000 of $3.0 million compared to $1.0 million in 1999. The increase in interest income was primarily due to higher cash and investment balances due to the private sales of 4.2 million shares of newly issued Common Stock of the Company that generated $54 million in net proceeds.

        Preferred dividends were $0.5 million in 2000 and 1999. Preferred dividends in 2000 and 1999 are related to payment of dividends on Series 1 Preferred Stock.

Liquidity and Capital Resources

        The Company has financed its operations primarily through the sale of equity securities, collaborative agreements and debt instruments. In 2000 the Company raised approximately $53.6 million (net) through the private placement of equity securities. The Company invests excess cash in investment securities that will be used to fund future operating costs. Cash, cash equivalents and investment securities totaled

26

$33.6 million at December 31, 2001. Cash used in operating activities for 2001 totaled $18.5 million. Revenues and other income sources were not sufficient in 2001 to cover operating expenses.

        During 2001, the Company invested $7.3 million of cash in land, building and equipment primarily related to its acquisition of the Denton, Texas manufacturing facility.

        At December 31, 2001, the Company has the following long-term commitments:

	Less than 1 year		2-3 years		4-5 years		Thereafter		Total
Lease obligations	$	1,170	$	2,134	$	1,836	$	1,553	$	6,693
Note payable		304		971		1,067		3,658		6,000

        Subsequent to December 31, 2001, the Company exercised its option to terminate its corporate office space lease with nine months notice and entered into a new lease for its corporate offices. The future minimum lease payments at December 31, 2001 reflect the termination of the existing lease and the addition of the new lease.

        In February 2000, the Company sold the majority of its investment in Angiotech Pharmaceuticals, Inc. for $4.0 million. In January 2002, the Company sold the remainder of its Angiotech stock for $1.4 million and recognized a gain on the sale of approximately $109,000. In the first quarter of 2000, the Company established a line of credit with Pharmaceutical Product Development, Inc. (PPD) of up to $5.0 million to assist in funding its phase III trial of its STR product in development. The Company's STR phase III trial has been on clinical hold since November of 2000. This line of credit is available to the Company only upon the successful resumption of phase III trials. The Company has not drawn funds on this line of credit to date. See Note 7 to the Notes to Consolidated Financial Statements for additional information. In addition to our line of credit with PPD, we will need to raise additional equity financing to fund our planned STR pivotal trials and planned Pretarget® phase I/II trials.

        The Company does not have any significant revenue sources that will continue into 2002. On occasion, the Company derives revenue from licensing its non-strategic patent technologies and government grants.

        The Company expects that its capital resources and interest income will be sufficient to finance its currently anticipated working capital and capital requirements into the first quarter of 2003. The Company's actual capital requirements will depend on numerous factors, including results of research and development activities, clinical trials, the levels of resources that the Company devotes to establishing and expanding marketing and manufacturing capabilities, competitive and technological developments and the timing of revenues and expense reimbursements resulting from relationships with third parties or collaborative agreements. The Company intends to seek additional funding through arrangements with corporate partners, licensing agreements, public or private equity financing, or other sources. There can be no assurance that the Company will be able to obtain such additional capital or enter into relationships with corporate partners on a timely basis, on favorable terms, or at all. If adequate funds are not available, the Company may be required to delay, reduce or eliminate expenditures for certain of its programs or products or enter into relationships with corporate partners to develop or commercialize products or technologies that the Company would otherwise seek to develop or commercialize itself.

Recent Developments

New Accounting Pronouncements

        In July 2001, the FASB issued Statement No. 141, Business Combinations, and Statement No. 142, Goodwill and Other Intangible Assets. Statement 141 requires that all business combinations be accounted for under a single method—the purchase method. Use of the pooling-of-interests method is no longer permitted. Statement 141 requires that the purchase method be used for business combinations initiated after June 30, 2001. Statement 142 requires that goodwill no longer be amortized to earnings, but instead be reviewed for impairment. The amortization of goodwill ceases upon adoption of the Statement, which

27

was adopted by the company on January 1, 2002. The adoption of this statement did not have a material impact on the Company's financial statements.

        In August 2001, the FASB issued Statement No. 143, Accounting for Asset Retirement Obligations, which addresses financial accounting and reporting obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The standard applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development, and (or) normal use of the asset. Statement No. 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The fair value of the liability is added to the carrying amount of the associated asset and this additional carrying amount is depreciated over the life of the asset. If the obligation is settled for other than the carrying amount of the liability, the Company will recognize a gain or loss on settlement. The Company will adopt this Statement on January 1, 2003. Management has not yet determined the impact of adopting this statement on its financial statements.

        In October 2001, the FASB issued Statement No. 144, Accounting for Impairment or Disposal of Long-Lived Assets, which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. While Statement No. 144 supersedes FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, it retains many of the fundamental provisions of that Statement. Statement No. 144 also supersedes the accounting and reporting provisions of APB Opinion No. 30, Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for the disposal of a segment of a business. However, it retains the requirement in Opinion No. 30 to report separately discontinued operations and extends that reporting to a component of an entity that either has been disposed of (by sale, abandonment, or in distribution to owners) or is classified as held for sale. The Company adopted the provisions of Statement No. 144 on January 1, 2002. The adoption of this statement did not have a material impact on the Company's financial statements.

Item 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        The Company is exposed to the impact of interest rate changes and changes in the market values of its investments.

Interest Rate Risk

        The Company's exposure to market rate risk for changes in interest rates relates primarily to the Company's debt securities included in its investment portfolio. The Company does not have any derivative financial instruments. The Company invests in debt instruments of the US Government and its agencies and high-quality corporate issuers. Investments in both fixed rate and floating rate interest earning instruments carry a degree of interest rate risk. Fixed rate securities may have their fair market value adversely impacted due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due in part to these factors, the Company's future investment income may fall short of expectations due to changes in interest rates or the Company may suffer losses in principal if forced to sell securities that have declined in market value due to changes in interest rates. At December 31, 2001, the Company owned government debt instruments in the amount of $2.6 million and corporate debt securities in the amount of $25.3 million. The Company's exposure to losses as a result of interest rate changes is managed through investing primarily in securities with relatively short maturities of up to three years and securities with variable interest rates. The Company has approximately $8.2 million of corporate debt securities and $1.1 million of federal government and agency securities that had maturity dates greater than one year at December 31, 2001. Of the investments with maturity dates greater than one year at December 31, 2001, $8.2 million were variable interest rate securities.

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Investment Risk

        The Company has received equity instruments under licensing agreements. These instruments are included in investment securities and are accounted for at fair value with unrealized gains and losses reported as a component of comprehensive loss and classified as accumulated other comprehensive income—unrealized gain on investment securities in shareholders' equity. Such investments are subject to significant fluctuations in fair market value due to the volatility of the stock market. At December 31, 2001, the Company owned such corporate equity securities in the amount of $1.6 million. In January 2002, all of the corporate equity securities were sold and the Company recognized a net gain on the sale of approximately $109,000.

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Item 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

        All financial schedules are omitted since the required information is not applicable or has been presented in the financial statements and the notes thereto.

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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

The Board of Directors and Shareholders
NeoRx Corporation

        We have audited the accompanying consolidated balance sheets of NeoRx Corporation and subsidiary as of December 31, 2001 and 2000, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the years in the three-year period ended December 31, 2001. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

        We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of NeoRx Corporation and subsidiary as of December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States of America.

/s/ KPMG LLP

Seattle, Washington
January 25, 2002

31

NEORX CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)

ASSETS

				December 31,
				2001			2000
Current assets:
Cash and cash equivalents				$	4,097		$	8,389
Investment securities					29,484			49,189
Notes receivable					177			2,617
Prepaid expenses and other current assets					907			1,333
			Total current assets		34,665			61,528
Facilities and equipment, at cost:
Land					460			—
Building					9,004			—
Leasehold improvements					3,283			3,283
Equipment and furniture					11,448			6,152
					24,195			9,435
Less: accumulated depreciation and amortization					(8,973	)		(7,791	)
	Facilities and equipment, net				15,222			1,644
Other assets, net					1,141			1,286
		Total assets		$	51,028		$	64,458
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable				$	1,537		$	1,702
Accrued liabilities					1,701			511
Current portion of note payable					304			—
		Total current liabilities			3,542			2,213
Long-term liabilities:
Note payable					5,696			—
Other					75			—
		Total long-term liabilities			5,771			—
Shareholders' equity:
Preferred stock, $.02 par value, 3,000,000 shares authorized:
	Convertible Preferred Stock, Series 1, 205,340 shares issued and outstanding at December 31, 2001 and 2000 (entitled in liquidation to $5,175 at December 31, 2001 and 2000)				4			4
Common stock, $.02 par value, 60,000,000 shares authorized, 26,571,098 and 26,197,699 shares issued and outstanding, at December 31, 2001 and 2000, respectively					532			524
Additional paid-in capital					223,905			220,702
Accumulated deficit					(183,304	)		(159,001	)
Accumulated other comprehensive income—unrealized gain on investment securities					578			16
		Total shareholders' equity			41,715			62,245
		Total liabilities and shareholders' equity		$	51,028		$	64,458

See accompanying notes to the consolidated financial statements.

32

NEORX CORPORATON AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)

			Years Ended December 31,
			2001			2000			1999
Revenues			$	2,873		$	3,549		$	591
Operating expenses:
Research and development				21,448			15,989			11,462
General and administrative				7,572			5,605			3,892
		Total operating expenses		29,020			21,594			15,354
Loss from operations				(26,147	)		(18,045	)		(14,763	)
Other income (expense):
	Other income			—			471			1,900
	Realized gain on sale of securities			4			3,353			—
	Interest income			2,736			2,986			1,029
	Interest expense			(395	)		(167	)		(117	)
		Total other income		2,345			6,643			2,812
Net loss				(23,802	)		(11,402	)		(11,951	)
Preferred stock dividends				(501	)		(503	)		(508	)
Net loss applicable to common shares			$	(24,303	)	$	(11,905	)	$	(12,459	)
Net loss per common share—basic and diluted			$	(0.92	)	$	(0.50	)	$	(0.59	)
Weighted average common shares outstanding—basic and diluted				26,402			23,853			21,009

See accompanying notes to the consolidated financial statements.

33

NEORX CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)

			Preferred Stock				Common Stock
															Accumulated Other Comprehensive Income
			Number of Shares		Par Value		Number of Shares	Par Value		Additional Paid-In Capital		Accumulated Deficit						Shareholders' Equity
Balance, December 31, 1998			208		$	4	21,007	$	420	$	163,189	$	(134,637	)	$	68		$	29,044
Exercise of stock options			—			—	66		1		105		—			—			106
Stock warrants issued for services			—			—	—		—		450		—			—			450
Compensation expense on stock options			—			—	—		—		407		—			—			407
Comprehensive loss:
	Net loss		—			—	—		—		—		(11,951	)		—			(11,951	)
	Unrealized gain on investment securities		—			—	—		—		—		—			274			274
Total comprehensive loss			—			—	—		—		—		—			—			(11,677	)
Preferred stock dividends			—			—	—		—		—		(508	)		—			(508	)
Balance, December 31, 1999			208			4	21,073		421		164,151		(147,096	)		342			17,822
Common stock issued, net of offering costs of $2,141			—			—	4,177		84		53,523		—			—			53,607
Common stock issued for services			—			—	4		—		81		—			—			81
Exercise of stock options			—			—	940		19		2,138		—			—			2,157
Stock options and warrants issued for services and credit arrangement			—			—	—		—		786		—			—			786
Conversion of preferred stock			(3	)		—	3		—		—		—			—			—
Conversion of subordinated debentures			—			—	1		—		23		—			—			23
Comprehensive loss:
	Net loss		—			—	—		—		—		(11,402	)		—			(11,402	)
	Unrealized gain on investment securities		—			—	—		—		—		—			3,027			3,027
		Less: reclassification adjustment for net gain on sales of securities	—			—	—		—		—		—			(3,353	)		(3,353	)
Total comprehensive loss			—			—	—		—		—		—			—			(11,728	)
Preferred stock dividends			—			—	—		—		—		(503	)		—			(503	)
Balance, December 31, 2000			205			4	26,198		524		220,702		(159,001	)		16			62,245
Common stock issued for services			—			—	50		1		147		—			—			148
Exercise of stock options and warrants			—			—	323		7		487		—			—			494
Stock options and warrants issued for services			—			—	—		—		1,281		—			—			1,281
Stock warrants issued for asset purchase			—			—	—		—		1,288		—			—			1,288
Comprehensive loss:
	Net loss		—			—	—		—		—		(23,802	)		—			(23,802	)
	Unrealized gain on investment securities		—			—	—		—		—		—			566			566
		Less: reclassification adjustment for net gain on sales of securities	—			—	—		—		—		—			(4	)		(4	)
Total comprehensive loss			—			—	—		—		—		—			—			(23,240	)
Preferred stock dividends			—			—	—		—		—		(501	)		—			(501	)
Balance, December 31, 2001			205		$	4	26,571	$	532	$	223,905	$	(183,304	)	$	578		$	41,715

See accompanying notes to the consolidated financial statements.

34

NEORX CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

			Years Ended December 31,
			2001			2000			1999
Cash flows from operating activities:
	Net loss		$	(23,802	)	$	(11,402	)	$	(11,951	)
	Adjustments to reconcile net loss to net cash used in operating activities:
	Depreciation and amortization			1,348			514			356
	Gain on sale of securities			(4	)		(3,353	)		—
	Stock and warrants received for license fees			(1,231	)		(471	)		—
	Common stock issued for services			148			81			—
	Stock options and warrants issued for services			1,281			486			450
	Compensation expense on employee stock options			—			—			407
	Change in operating assets and liabilities (net of acquisition):
		(Increase) decrease in notes receivable		2,440			(2,483	)		(42	)
		(Increase) decrease in prepaid expenses and other assets		587			(875	)		405
		Increase (decrease) in accounts payable		(165	)		883			63
		Increase (decrease) in accrued liabilities		887			(418	)		(263	)
		(Decrease) in deferred revenue		—			—			(250	)
	Net cash used in operating activities			(18,511	)		(17,038	)		(10,825	)
Cash flows from investing activities:
	Proceeds from sales and maturities of investment securities			50,258			54,431			27,662
	Purchases of investment securities			(28,760	)		(84,833	)		(14,435	)
	Facilities and equipment purchases			(7,272	)		(2,012	)		(154	)
	Net cash provided by (used in) investing activities			14,226			(32,414	)		13,073
Cash flows from financing activities:
	Repayment of capital lease obligations			—			—			(4	)
	Repayment of subordinated debentures			—			(1,172	)		—
	Proceeds from stock options and warrants exercised			494			2,157			106
	Preferred stock dividends			(501	)		(503	)		(508	)
	Proceeds from issuance of common stock			—			53,607			—
	Net cash provided by (used in) financing activities			(7	)		54,089			(406	)
Net increase (decrease) in cash and cash equivalents				(4,292	)		4,637			1,842
Cash and cash equivalents:
	Beginning of year			8,389			3,752			1,910
	End of year		$	4,097		$	8,389		$	3,752

See the accompanying notes to the consolidated financial statements.

35

NEORX CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. The Company

        NeoRx is a cancer therapeutics company developing products for targeted delivery of anti-cancer agents, including radiopharmaceuticals, directly to sites of disease. The consolidated financial statements include the accounts of NeoRx Corporation and its wholly owned subsidiary, NRX Acquisition Corporation (Company). All significant intercompany balances and transactions have been eliminated.

NOTE 2. Summary of Significant Accounting Policies

        Cash and Cash Equivalents:    All highly liquid investments with a remaining maturity of three months or less when purchased, are considered to be cash equivalents. Cash equivalents consisted primarily of money market funds, federal government and agency securities and corporate debt securities totaling $4,097,000 and $6,906,000 at December 31, 2001 and 2000, respectively.

        Estimates and Uncertainties:    The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

        Research and Development Revenues and Expenses:    Revenues from collaborative agreements are recognized as earned as the Company performs research activities under the terms of each agreement. Billings in excess of amounts earned are classified as deferred revenue. Pursuant to the Securities and Exchange Commission Staff Accounting Bulletin No. 101, also known as SAB 101, "Revenue Recognition in Financial Statements," non-refundable upfront technology license fees, where the company is providing continuing services related to product development, are deferred. Such fees are recognized as revenue over the product development periods based on estimated total development costs.

        The Company accounts for equity instruments received in payment for licensing fees or other services in accordance with Financial Accounting Standards Board Emerging Issues Task Force Issue No. 00-8 (EITF 00-8), Accounting by a Grantee for Equity Instruments to be Received in Conjunction with Providing Goods or Services. The Company records the fair value of the equity instruments as revenue in accordance with its revenue recognition policy. Revenue recognized from the receipt of equity instruments totaled approximately $1,231,000 in 2001. No revenue was recognized from the receipt of equity instruments in 2000 and 1999.

        Milestone payments are recognized as revenue at the time such payments are due, based on the ratio of cumulative costs incurred to date, to total estimated development costs. Any remaining balance is deferred and recognized as revenue over the remaining development period. The Company adopted SAB 101 on October 1, 2000. The adoption of SAB 101 did not have a material impact on the Company's financial statements. Prior to the adoption of SAB 101, revenue was recognized for milestone payments upon the attainment of a specified event. Other payments for technology or licensing fees were recognized as revenue when payment was received, unless subject to a contingency, which resulted in the deferral of revenue. Research and development costs are expensed as incurred. It is the Company's practice to offset third-party collaborative reimbursements received as a reduction of research and development expenses. Third-party reimbursements for 2001, 2000 and 1999 were $383,775, $367,640, and $276,127, respectively.

        Income Taxes:    The Company computes income taxes using the asset and liability method, under which deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of the Company's assets and liabilities and for operating loss and tax credit carry

36

forwards. A valuation allowance is established when necessary to reduce deferred tax assets to the amount, if any, which is more likely than not expected to be realized.

        Fair Value of Financial Instruments:    The Company has financial instruments consisting of cash, cash equivalents, investment securities, notes receivable, accounts payable, accrued liabilities and note payable. All of the Company's financial instruments, based on either the short-term nature of the instrument, current market indicators or quotes from brokers, approximate their carrying amount.

        Investment Securities:    The Company considers all investment securities as available-for-sale. All securities are carried at fair value. The Company does not invest in derivative financial instruments. Unrealized gains and losses on investment securities are reported as a component of comprehensive income or loss and classified as accumulated other comprehensive income or loss—unrealized gain (loss) on investment securities in shareholders' equity.

        Segment Reporting:    The Company has one operating business segment. Revenues consist almost entirely of fees received under license agreements. Expenses incurred are reported according to their nature.

        Comprehensive Loss:    The Company's comprehensive loss for 2001, 2000, and 1999 consisted of net loss and net unrealized gain on investment securities.

        Facilities and Equipment:    Facilities and equipment are stated at cost. Depreciation is provided using the straight-line method over estimated useful lives of five to seven years for equipment and furniture, three years for computer equipment and software and thirty years for buildings. Leasehold improvements are amortized using the straight-line method over the shorter of the assets' estimated useful lives or the terms of the leases.

        Intangible Assets:    Intangible assets principally represent licenses and processes and workforce and are included in other assets. Amortization is provided using the straight-line method over estimated useful lives of thirty years for licenses and processes and five years for workforce in place. Licenses and processes and workforce totaled approximately $845,000 at December 31, 2001, net of accumulated amortization of $31,000, and are included in other assets.

        Net Loss Per Common Share:    Basic and diluted loss per share are based on net loss applicable to common shares, which is comprised of net loss and preferred stock dividends in all periods presented. Shares used to calculate basic loss per share are based on the weighted average number of common shares outstanding during the period. Shares used to calculate diluted loss per share are based on the potential dilution that would occur upon the exercise or conversion of securities into common stock using the treasury stock method. Calculations of basic and diluted loss per share for 2001, 2000 and 1999 excludes the effect of options and warrants to purchase additional shares of common stock because the share increments would be antidilutive. The computation of diluted net loss per share excludes the following options and warrants to acquire shares of common stock for the years indicated because their effect would be antidilutive.

	2001		2000		1999
Common Stock options		4,614,000		3,156,000		3,629,000
Weighted average exercise price per share	$	5.10	$	5.16	$	2.56
Common Stock warrants		1,051,000		305,000		150,000
Weighted average exercise price per share	$	8.85	$	4.46	$	1.69

37

        In addition, 234,088 aggregate shares issuable upon conversion of the Company's preferred stock are not included in the calculation of diluted loss per share for 2001 and 2000, and 283,712 aggregate shares issuable upon conversion of the Company's convertible subordinated debentures and its preferred stock are not included in the calculation of diluted loss per share for 1999 because the share increments would be antidilutive.

        Stock Issued to Employees:    The Company accounts for its stock option plans for employees in accordance with the provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. Compensation expense related to employee stock options is recorded if, on the date of grant, the fair value of the underlying stock exceeds the exercise price. The Company amortizes compensation expense on fixed awards with pro rata vesting based on the straight-line method. The Company applies the disclosure-only requirements of SFAS No. 123, "Accounting for Stock-Based Compensation", which allows entities to continue to apply the provisions of APB Opinion No. 25 for transactions with employees and provide pro forma net income and pro forma earnings per share disclosures as if the fair-value based method of accounting in SFAS No. 123 had been applied to employee stock option grants.

        Reclassifications:    Certain reclassifications were made to the 2000 financial statements to make them comparable with the 2001 presentation.

        Concentration in the Available Sources of Supply of Materials:    The Company is dependent on suppliers for the timely delivery of materials and services and may experience interruptions in supply. The Company has limited suppliers of the following materials at December 31, 2001:

•

Commercial quantities of holmium-166, the radionuclide used in the Company's STR product candidate, and yttrium-90, the radionuclide used in the Company's Pretarget® product candidates;



•

The small-molecule compound used in the Company's STR product candidate to deliver holmium-166 to the bone; and



•

The proteins and small-molecule compounds used in the Company's Pretarget® product candidates.

        Sources of some of these materials are limited, and the Company may be unable to obtain these materials in amounts and at prices necessary to successfully commercialize its proposed products.

        New Accounting Pronouncements:    In July 2001, the FASB issued Statement No. 141, Business Combinations, and Statement No. 142, Goodwill and Other Intangible Assets. Statement 141 requires that all business combinations be accounted for under a single method—the purchase method. Use of the pooling-of-interests method is no longer permitted. Statement 141 requires that the purchase method be used for business combinations initiated after June 30, 2001. Statement 142 requires that goodwill no longer be amortized to earnings, but instead be reviewed for impairment. The amortization of goodwill ceases upon adoption of the Statement, which was adopted by the Company on January 1, 2002. The adoption of Statement No. 142 did not have a material impact on the Company's financial statements.

        In August 2001, the FASB issued Statement No. 143, Accounting for Asset Retirement Obligations, which addresses financial accounting and reporting obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The standard applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development, and (or) normal use of the asset. Statement No. 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The fair value of the liability is added to the carrying amount of the associated

38

asset and this additional carrying amount is depreciated over the life of the asset. If the obligation is settled for other than the carrying amount of the liability, the Company will recognize a gain or loss on settlement. The Company will adopt this Statement on January 1, 2003. Management has not yet determined the impact of adopting this statement on its financial statements.

        In October 2001, the FASB issued Statement No. 144, Accounting for Impairment or Disposal of Long-Lived Assets, which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. While Statement No. 144 supersedes FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, it retains many of the fundamental provisions of that Statement. Statement No. 144 also supersedes the accounting and reporting provisions of APB Opinion No. 30, Reporting the Results of Operations—Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for the disposal of a segment of a business. However, it retains the requirement in Opinion No. 30 to report separately discontinued operations and extends that reporting to a component of an entity that either has been disposed of (by sale, abandonment, or in distribution to owners) or is classified as held for sale. The Company adopted the provisions of Statement No. 144 on January 1, 2002. The adoption of this statement did not have a material impact on the Company's financial statements.

NOTE 3. Investment Securities

Investment securities consisted of the following (in thousands):

	December 31,
	2001		2000
Federal government and agency securities	$	2,556	$	15,340
Corporate debt securities		25,292		33,595
Corporate equity securities		1,636		254
	$	29,484	$	49,189

Unrealized gains and losses at December 31, 2001 are as follows (in thousands):

	Amortized Cost Basis		Fair Market Value		Unrealized Gains		Unrealized Losses
Federal government and agency debt securities	$	2,534	$	2,556	$	53	$	(31	)
Corporate debt securities		24,937		25,292		386		(31	)
Corporate equity securities		1,435		1,636		201		—
	$	28,906	$	29,484	$	640	$	(62	)
Net unrealized gains					$	578

39

Unrealized gains and losses at December 31, 2000 are as follows (in thousands):

	Amortized Cost Basis		Fair Market Value		Unrealized Gains		Unrealized Losses
Federal government and agency debt securities	$	15,287	$	15,340	$	53	$	—
Corporate debt securities		33,415		33,595		183		(3	)
Corporate equity securities		471		254		—		(217	)
	$	49,173	$	49,189	$	236	$	(220	)
Net unrealized gains					$	16

        At December 31, 2001, the Company had approximately $8,169,000 of corporate debt securities with variable interest rates that mature from 2005 to 2011 and $1,051,000 of federal government and agency securities that mature in 2003. All other debt securities as of December 31, 2001 had maturities of less than one year.

NOTE 4. Notes Receivable

        The Company has various unsecured notes receivable resulting from licensing agreements, which included a note for $2,500,000 at December 31, 2000. The note was collected during the year ended December 31, 2001.

NOTE 5. Accrued Liabilities

        Accrued liabilities consist of the following (in thousands):

	December 31,
	2001		2000
Compensation	$	798	$	437
Severance		510		7
Other		393		67
	$	1,701	$	511

NOTE 6. Note Payable

        In connection with the Company's April 19, 2001 acquisition of a radiopharmaceutical manufacturing facility and certain other related assets in Denton, Texas, the Company assumed a $6,000,000 note payable. The terms of the note payable include interest at a variable interest rate equal to the prime rate as published in the Wall Street Journal (4.75% at December 31, 2001) due and payable on a quarterly basis until April 2002. Beginning in May 2002, principal and interest will be due and payable in monthly installments of $61,195 until the final note maturity in April 2009. The assets acquired secure the note payable.

40

        Note payable maturities as of December 31, 2001, are as follows (in thousands):

		Year
2002		$	304
2003			474
2004			497
2005			521
2006			546
Thereafter			3,658
	Total	$	6,000

NOTE 7. Line of Credit

        In 2000, the Company established a line of credit with Pharmaceutical Product Development, Inc. (PPD), of up to $5,000,000 to assist in funding the Company's phase III trials of its STR product. The FDA placed the Company's phase III trials on clinical hold in November 2000. This line of credit is available to the Company only upon the successful resumption of phase III trials. Funds may be drawn at any time for clinical trial services and interest is payable on any unpaid balances at 16%. Principal and interest are payable in full in twenty-four equal monthly installments beginning thirty days after funds are drawn. The Company has not drawn funds on this line of credit to date. The line of credit terminates on the earlier of the second anniversary of the first draw date or on various other dates related to commitments completed or change in control of the Company.

        In connection with this line of credit agreement the Company issued a warrant to purchase 75,000 shares of Common Stock at an exercise price of $6.7734. The Company recorded the fair value of the warrants as a deferred cost within other assets, which is being amortized over the expected term of the line of credit. Based upon the Black-Scholes option-pricing model, the grant-date fair value of the warrant was $5.32 per share using assumptions of expected volatility of 112%, contractual warrant term of four years, expected dividend rate of zero and a risk-free rate of interest of 6.1%. The warrant expires in 2004.

NOTE 8. Leases

        The lease agreements for the Company's principal locations expire in 2002, 2006 and 2009. Total rent expense under operating leases was approximately $1,387,000, $613,000, and $591,000, for 2001, 2000 and 1999, respectively.

        Minimum lease payments under operating leases as of December 31, 2001, are as follows (in thousands):

		Year
2002		$	1,170
2003			1,067
2004			1,067
2005			1,066
2006			770
Thereafter			1,553
	Total minimum lease payments	$	6,693

41

        Subsequent to December 31, 2001, the Company exercised its option to terminate its corporate office space lease with nine months notice and entered into a new lease for its corporate offices. The future minimum lease payments at December 31, 2001 reflect the termination of the existing lease and the addition of the new lease.

NOTE 9. Shareholders' Equity

        Common Stock Transactions:    During 2001, the Company generated approximately $377,000 in net proceeds from the issuance of 254,399 common shares related to the exercises of employee stock options and approximately $117,000 in net proceeds from the issuance of 69,000 common shares related to the exercises of stock warrants. Also during 2001, the Company issued 50,000 common shares to an officer of the Company and recorded $148,000 in compensation expense.

        During 2000, the Company generated approximately $53,607,000 in net proceeds from the private sales of 4,177,045 newly issued common shares of the Company. Also during 2000, the Company generated $2,157,278 in net proceeds from the issuance of 939,485 common shares related to the exercises of employee stock options. The Company issued 3,294 shares of common stock in exchange for 2,900 shares of Series 1 Convertible Preferred Stock, also known as Series 1 Preferred Stock, and issued 890 shares of common stock upon conversion of $23,000 of the Company's convertible subordinated debentures. The Company also issued 3,750 common shares for consulting services.

        Preferred Stock Transactions.    Holders of Series 1 Preferred Stock are entitled to receive an annual cash dividend of $2.4375 per share if declared by the Board of Directors (the Board), payable semi-annually on June 1 and December 1. Dividends are cumulative. Each share of Series 1 Preferred Stock is convertible into approximately 1.14 shares of common stock, subject to adjustment in certain events. The Series 1 Preferred Stock is redeemable at the option of the Company at $25.00 per share. Holders of Series 1 Preferred Stock have no voting rights, except in limited circumstances. The liquidation value at December 31, 2001 was approximately $5,175,000.

        Shareholders' Rights Plan:    The Company has adopted a Shareholders' Rights Plan intended to protect the rights of shareholders by deterring coercive or unfair takeover tactics. The Board declared a dividend to holders of the Company's common stock, payable on April 19, 1996, to shareholders of record on that date, of one preferred share purchase right, also known as the Right, for each outstanding share of the common stock. The Right is exercisable 10 days following the offer to purchase or the acquisition of a beneficial ownership of 20% of the outstanding common stock by a person or group of affiliated persons. Each Right entitles the registered holder, other than the acquiring person or group, to purchase from the Company one-hundredth of one share of Series A Junior Participating Preferred Stock, also known as Series A Preferred Stock, at a price of $40, subject to adjustment. The Rights expire in 2006. The Series A Preferred Stock will be entitled to a minimum preferential quarterly dividend of $1 per share and has liquidation provisions. Each share of Series A Preferred Stock has 100 votes, and will vote with the common stock. Prior to the acquisition by a person or group of 20% of the outstanding common stock, the Board may redeem each Right at a price of $.001.

        In lieu of exercising the Right by purchasing one one-hundredth of one share of Series A Preferred Stock, the holder of the Right, other than the acquiring person or group, may purchase for $40, that number of the Company's common stock having a market value of twice that price.

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The Board may, without further action by the shareholders of the Company, issue preferred stock in one or more series and fix the rights and preferences thereof, including dividend rights, dividend rates, conversion rates, voting rights, terms of redemption, redemption price or prices, liquidation preferences and the number of shares constituting any series or the designations of such series.

        Stock Options:    The Company has two stock option plans with options available for grant: the 1994 Stock Option Plan (the "1994 Plan") and the 1991 Stock Option Plan for Non-Employee Directors (the "Directors Plan").

        The 1994 Plan, as amended in 2000, authorizes the Board or an Option Committee appointed by the Board to grant options to purchase a maximum of 5,800,000 shares of common stock. The 1994 Plan allows for the issuance of incentive stock options and nonqualified stock options to employees, officers, Directors, agents, consultants, advisors and independent contractors of the Company, subject to certain restrictions. All option grants expire ten years from the date of grant, except for certain grants to consultants, which have expirations based upon terms of service. Beginning in May 2000, option grants for employees with at least one year of service become exercisable in monthly increments over a four-year period from the grant date. Option grants for employees with less than one year of service and employees receiving promotions beginning in May 2000 become exercisable at a rate of 25% after one year from the grant date and then in monthly increments at a rate of 1/48th per month over the following three years. As of December 31, 2001, there were 267,638 shares of common stock available for grant under the 1994 Plan.

        In connection with a severance and consulting agreement with a former officer, the Company accelerated the vesting of stock options to acquire 100,000 shares of common stock. The Company recognized approximately $208,000 in stock compensation expense in connection with the severance and consulting arrangement and has deferred stock compensation expense totaling approximately $107,000 at December 31, 2001. Compensation expense related to the unvested options at the time of separation of employment will be recognized over the two-year service period of the consulting arrangement.

        Also in July 2001, the Company granted stock options pursuant to an agreement outside the Company's 1994 Plan and the Directors Plan to an officer of the Company to purchase 150,000 shares of common stock at an exercise price of $3.35 per share. The options vest in equal monthly increments over twelve months beginning one month after the date of grant and expire ten years from the date of grant.

        In connection with various agreements with consultants in 2001 for consulting services, the Company granted stock options to purchase 180,000 shares of common stock at exercise prices ranging from $2.34 to $5.53 per share. The options vest at various intervals up to two years after the grant date. Compensation expense is recorded for the fair values of the grants over the period the services are provided by the consultants. Based upon the Black Scholes option-pricing model, fair values of the options ranged from $2.57 to $4.82 per share using assumptions of expected volatilities ranging from 98% to 146%, expected option lives of up to three years, expected dividend rate of zero and risk-free rates of interest ranging from 1.8% to 4.7%. The Company recorded compensation expense of approximately $451,000 in 2001 related to these grants with deferred compensation of $266,000 at December 31, 2001. The fair value of the options with future vesting dates will not be known until the earlier of the vesting of the options or the completion of the services being provided.

        In connection with an agreement with a consultant in 2000 for clinical consulting services, the Company granted stock options to purchase 100,000 shares of common stock at an exercise price of $9.1875. The options vest 25% immediately, and 25% every six months thereafter. Compensation expense for the fair value of the grant was recorded over the period the services were provided by the consultant. Based upon the Black Scholes option-pricing model, the fair value of the options ranged from $7.81 to

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$8.39 per share using assumptions of expected volatility of 142% to 144%, expected option life of two years, expected dividend rate of zero and risk-free rates of interest of 4.6% to 6.6%. During 2001, the clinical consulting services were completed. The Company recorded compensation expense of approximately $74,000 and $280,000 in 2001 and 2000, respectively.

        In May 2000, the Company amended its 1994 stock option plan to provide that an employee will have two years to exercise the vested portion of an option upon retirement from the Company, whereas the employee previously had three months to exercise such option. Compensation expense equal to the intrinsic value of an employee's option at the modification date will be recorded for employees that receive an extension of their options upon retirement. The intrinsic value at the modification date for the options subject to the modification that are outstanding at December 31, 2001 totaled approximately $22,183,000.

        In December 1999, the Company extended the term of 211,000 vested stock options for certain employees. At the time of the extension of the term, the fair value of the Company's common stock was greater than the exercise price of the stock options. The Company recorded approximately $407,000 in compensation expense for the difference between the fair value of the Company's common stock on the date the exercise period was extended and the exercise price of the stock options.

        The Directors Plan authorizes the grant of stock options to non-employee Directors to purchase a maximum of 250,000 shares of Common Stock. Under the terms of the amended plan, each eligible Director receives annually, concurrent with the annual election of Directors, an option to purchase 10,000 shares of Common Stock at an exercise price equal to the fair market value of the Common Stock on the date of grant. The options become exercisable in two equal annual installments beginning with the first annual meeting of shareholders after the date of grant. In addition, each newly appointed non-employee Director receives a one-time initial option to purchase 20,000 shares of common stock at an exercise price equal to the fair market value of the common stock on the date of grant. Options expire on the earlier of ten years from the date of grant or five years after the Director's termination of service as a Director. As of December 31, 2001, there were no shares of common stock available for grant under the Directors Plan. Information relating to stock option activity is as follows (in thousands, except per share data):

	2001				2000				1999
	Number of Shares		Weighted Average Exercise Price		Number of Shares		Weighted Average Exercise Price		Number of Shares		Weighted Average Exercise Price
Outstanding at beginning of year	3,156		$	5.16	3,629		$	2.56	3,335		$	2.81
Granted	1,874			5.08	810			13.57	598			1.49
Exercised	(254	)		1.48	(939	)		2.30	(66	)		1.60
Cancelled	(162	)		11.69	(344	)		5.38	(238	)		3.70
Outstanding at end of year	4,614		$	5.10	3,156		$	5.16	3,629		$	2.56
Exercisable at end of year	2,277		$	4.79	1,705		$	3.51	2,118		$	3.22

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        Information relating to stock options outstanding and exercisable at December 31, 2001 is as follows (in thousands, except per share data):

	Options Outstanding
					Options Exercisable
		Weighted Average Remaining Life in Years
Range of Exercise Prices	Number of Shares		Weighted Average Exercise Price		Number of Shares	Weighted Average Exercise Price
$1.25—$1.60	1,395	4.31	$	1.54	1,026	$	1.54
$1.63—$5.15	1,263	7.31		3.41	278		3.02
$5.16—$8.06	1,302	7.28		6.22	663		6.57
$8.38—$21.75	654	8.09		13.71	310		13.32
	4,614	6.51	$	5.10	2,277	$	4.79

        Had compensation cost for these stock option plans been determined in accordance with SFAS 123, the Company's "Net Loss", "Net Loss Applicable to Common Shares" and "Net Loss Per Common Share" would have increased to the following pro forma amounts for 2001, 2000 and 1999 (in thousands, except per share data):

		2001			2000			1999
Net loss
	As reported	$	(23,802	)	$	(11,402	)	$	(11,951	)
	Pro forma		(28,355	)		(13,799	)		(13,967	)
Net loss applicable to common shares
	As reported	$	(24,303	)	$	(11,905	)	$	(12,459	)
	Pro forma		(28,856	)		(14,302	)		(14,475	)
Net loss per common share, basic and diluted
	As reported	$	(.92	)	$	(.50	)	$	(.59	)
	Pro forma		(1.09	)		(.60	)		(.69	)

        The fair value of each stock option granted is valued on the date of grant using the Black Scholes option-pricing model. During 2001, the weighted average grant-date fair value of stock options granted was $3.41 per share using assumptions of expected volatility of 98%, expected option lives of three years, expected dividend rate of zero and a risk-free rate of interest of 5.1%. During 2000, the weighted average grant-date fair value of stock options granted was $11.50 per share using assumptions of expected volatility of 144%, expected option lives of three years, expected dividend rate of zero and a risk-free rate of interest of 5.1%. During 1999, the weighted average grant-date fair value of stock options granted was $1.16 per share using assumptions of expected volatility of 112%, expected option lives of four years, expected dividend rate of zero and a risk-free rate of interest of 6.6%.

        Restricted Stock.    The Company has a Restricted Stock Plan (the "Restricted Stock Plan") under which restricted stock may be granted or sold to selected employees, officers, agents, consultants, advisors and independent contractors of the Company. Under the Restricted Stock Plan, adopted in 1991, 250,000 shares are authorized for grant, of which 130,250 shares remain available for grant at December 31, 2001. There were 50,000 shares granted without restrictions and 10,000 shares granted subject to certain performance requirements during 2001 for services provided or to be provided to the Company. The performance requirements related to the 10,000 shares granted were not met at December 31, 2001. There

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were 3,750 shares granted without restrictions during 2000 for services. The Company recorded approximately $148,000 and $81,000 in compensation expense related to these grants in 2001 and 2000, respectively. No restricted shares were granted in 1999.

        Warrants.    In connection with the agreement to purchase the manufacturing facility in Denton, Texas, the Company on April 19, 2001, issued to International Isotopes Inc. a three-year warrant to purchase up to 800,000 shares of NeoRx Common Stock at a purchase price of $10 per share. The warrant is exercisable at any time during the term of the warrant. If at any time during the term of the warrant the closing price of the Company's Common Stock equals or exceeds $20 per share, the Company at any time thereafter will have the right to acquire all or any portion of the shares issuable under the warrant at a nominal amount. The Company must give at least 15 days' written notice of its election to purchase the shares issuable under the warrant and the purchase date on or after which it may consummate such purchase. The holder of the warrant may exercise the warrant through the payment of the exercise price prior to the purchase date set forth in the notice. The warrant was valued at $1.61 per share using an option pricing model with assumptions of expected volatility of 125%, expected warrant life of three years, expected dividend rate of zero and a risk-free rate of interest of 4.6%. On July 25, 2001, the Company filed with the Securities and Exchange Commission a registration statement to register the shares underlying the warrant.

        In connection with an agreement in 2001 for corporate communications services, the Company issued a warrant to purchase 15,000 shares of common stock at an exercise price of $3.51. The Company recorded an expense in the amount of $22,000 for the fair value of the warrants on the date the services were completed. Based upon the Black Scholes option-pricing model, the grant-date fair value of the warrant was $1.47 per share using assumptions of expected volatility of 142%, expected warrant life of two years, expected dividend rate of zero and a risk-free rate of interest of 3.2%. The warrant expires in 2003.

        In connection with an agreement in 2000 for corporate communications services, the Company issued warrants to purchase 80,000 shares of common stock at exercise prices ranging from $6.00 to $9.00. The Company recorded an expense in the amount of $205,000 for the fair value of the warrants on the date the services were completed. Based upon the Black Scholes option-pricing model, the grant-date fair values of the warrants ranged from $5.32 to $7.97 per share using assumptions of expected volatility of 112%, expected warrant lives of two years, expected dividend rate of zero and a risk-free rate of interest of 6.1%. The warrants expired February 1, 2002.

        In connection with an agreement with a company in 1999 for corporate communications services, the Company issued a warrant to purchase 150,000 shares of common stock at an exercise price of $1.6875, of which 69,000 shares were exercised during 2001. The Company recorded an expense in the amount of $450,000 for the fair value of the warrant on the date the services were completed. Based upon the Black Scholes option-pricing model, the grant-date fair value of the warrant was $1.22 per share using assumptions of expected volatility of 112%, expected warrant life of five years, expected dividend rate of zero and a risk-free rate of interest of 6.6%. The warrant expires in 2004.

NOTE 10. Revenues

        Revenue in 2001 included $1,231,000 from the receipt of a warrant related to a prior licensing agreement. The Company recorded the fair value of the warrant as revenue when contingencies associated with the receipt of the warrant had been removed. The Company exercised the warrant in the fourth quarter of 2001. The shares acquired upon exercise are included in investment securities at December 31, 2001. The Company recorded approximately $335,000 of revenue from a lease agreement at its radiopharmaceutical manufacturing facility in Denton, Texas. The agreement expires in April 2002.

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        The Company recorded $1,975,000 of revenue in 2000 from a licensing agreement, entered into during 1998 with Theseus LTD, concurrent with Theseus LTD's 2000 acquisition by North American Scientific, Inc.

        The Company received $1,900,000 in 1999 from final payments under a previous licensing agreement, which was recorded as other income.

NOTE 11. Cash Flows

        Interest paid by the Company was $266,000, $49,000, and $117,000, for 2001, 2000 and 1999, respectively. During 2001, the Company acquired assets through the assumption of $378,000 in liabilities and a $6,000,000 note payable and through the forgiveness of a note receivable in the amount of $700,000 that was recorded under other assets at December 31, 2000. During 2000, $23,000 of subordinated debentures was converted into 890 shares of Common Stock. Also during 2000, the Company issued warrants valued at $399,000 in connection with the line of credit, which have been recorded as deferred costs within other assets.

NOTE 12. Federal Income Taxes

        Temporary differences and carryforwards giving rise to deferred tax assets were as follows (in thousands):

		December 31,
		2001			2000
Net operating loss carryforwards		$	29,076		$	26,865
Research and experimentation credit carryforwards			7,235			6,220
Capitalized research and development			9,108			5,732
Depreciation and amortization			205			425
Other			1,243			748
Deferred tax assets			46,867			39,990
Deferred tax asset valuation allowance			(46,867	)		(39,990	)
	Net deferred taxes	$	—		$	—

        The Company has established a valuation allowance equal to the amount of deferred tax assets because the Company has not had taxable income since its inception and significant uncertainty exists regarding the ultimate realization of the deferred tax assets. Accordingly, no tax benefits have been recorded in the accompanying statements of operations. The valuation allowance increased by $6,877,000, $7,903,000, and $4,000,000 in 2001, 2000 and 1999, respectively.

        The Company has net operating loss carryforwards of approximately $86,000,000, which expire from 2002 through 2021. Research and experimentation credits expire from 2002 to 2021. As a result of changes in ownership, the utilization of the Company's net operating loss carry forwards may be limited.

        Approximately $17,518,000 of the Company's net operating loss carryforwards at December 31, 2001 result from deductions associated with the exercise of non-qualified employee stock options, the realization of which would result in a credit to shareholders' equity.

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NOTE 13. Related Party Transactions

        The Company's Chairman of the Board of Directors, Dr. Fred Craves, had a consulting agreement with the Company that provided that he shall be retained as a general advisor and consultant to the Company's management on all matters pertaining to the Company's business. In exchange for such services, he was compensated $30,000 for each calendar quarter of services, plus reasonable travel and other expenses. Compensation payments under this agreement totaled $120,000 for each of the years 2001, 2000 and 1999. In addition, payments for travel and other expenses totaled approximately $58,800, $29,900 and $22,500 for 2001, 2000 and 1999, respectively. In 2002 the Company did not renew this agreement with Dr. Craves.

        Dr. Craves is a founder of Bay City Capital, LLC, also known as BCC, a merchant bank focused on the life sciences industry. Another NeoRx Director is on the business advisory board of BCC. The Company and BCC entered into an agreement whereby BCC will act as the Company's advisor for the purpose of identifying opportunities to enter into strategic alliances. The Company paid a retainer fee of $50,000 in cash for each calendar quarter through the end of 2001. The Company renewed the agreement for 2002 and will pay a retainer fee of $80,000 per quarter. The agreement also includes a percentage of consideration, ranging from one to five percent, depending on the ultimate amount of consideration raised. Retainer fee payments under this agreement totaled $300,000 for 2001, which included the balance payable of $100,000 at December 31, 2000. The Company also paid to BCC approximately $612,000 during 2001 for commissions related to the purchase of the radiopharmaceutical manufacturing facility and certain related assets located in Denton, Texas.

        In connection with an agreement to provide financial consulting services in 2001, a Director received fees in 2001 of $115,000 and stock option grants of 10,000 shares in December 2000 and 150,000 shares in January 2001. Services related to these stock options were fully provided by December 31, 2001 and this agreement was terminated; the associated stock options were fully vested at December 31, 2001, which included 58,333 of options that were modified in January 2002 to fully vest these options effective December 2001. The Company recorded an expense in the amount of $526,000 during 2001 for the fair value of the option grants on the date the services were completed.

        The Company has a demand note receivable from an officer with a balance of approximately $115,000 as of December 31, 2001 that is recorded in other assets. During 2001 and 2000 the Company had a demand note from another officer of approximately $61,000; this note was paid in full on July 31, 2001.

NOTE 14. 401(K) Plan

        The Company sponsors a 401(K) plan that covers substantially all employees. At its own discretion, the Company may make contributions to the plan on a percentage of participants' contributions. The Company made contributions of approximately $22,000, $17,000 and $19,000 for the years ended December 31, 2001, 2000 and 1999, respectively. The Company has no other post employment or post retirement benefit plans.

NOTE 15. Asset Acquisition

        On April 19, 2001, the Company completed its purchase from International Isotopes Inc. of a radiopharmaceutical manufacturing and distribution facility and certain other related assets in Denton, Texas. The Company has hired certain former employees of International Isotopes to serve on the Company's radiopharmaceutical manufacturing team at the facility. The Company intends to use the facility primarily to produce its Skeletal Targeted Radiation (STR) product candidate and other products in development.

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        A summary of the purchase price for the radiopharmaceutical manufacturing facility is as follows:

Cash	$	6,000,000
Stock warrant		1,288,000
Direct acquisition costs		1,146,000
Note payable		6,000,000
Liabilities assumed		378,000
Total purchase price	$	14,812,000

        The purchase price was allocated as follows:

Land	$	460,000
Building		9,000,000
Machinery and equipment		4,132,000
Furniture and fixtures		344,000
Licenses and processes		786,000
Workforce		90,000
Total	$	14,812,000

        Licenses and processes and workforce will be amortized over their estimated useful lives of thirty years and five years, respectively.

        Part of the cash consideration was in the form of forgiveness of amounts owed by International Isotopes, Inc. to NeoRx, including a note receivable of $700,000 included in other assets at December 31, 2000.

NOTE 16. Unaudited Quarterly Data

        The following table presents summarized unaudited quarterly financial data (in thousands, except per share data):

	First Quarter			Second Quarter			Third Quarter			Fourth Quarter
2001
Revenues	$	1,039		$	135		$	263		$	1,436
Operating expenses		5,486			6,444			8,418			8,672
Net loss		(3,581	)		(5,570	)		(7,478	)		(7,173	)
Net loss applicable to common shares		(3,706	)		(5,695	)		(7,604	)		(7,298	)
Net loss per common share—basic and diluted		(.14	)		(.22	)		(.29	)		(.28	)
2000
Revenues	$	149		$	727		$	684		$	1,989
Operating expenses		6,063			5,062			4,852			5,617
Net loss		(2,366	)		(3,855	)		(3,450	)		(1,731	)
Net loss applicable to common shares		(2,493	)		(3,982	)		(3,575	)		(1,855	)
Net loss per common share—basic and diluted		(.12	)		(.17	)		(.15	)		(.06	)

        Note: Net loss per common share—basic and diluted may not add to net loss per common share for the year due to rounding.

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NOTE 17. Contingency

        The Company is in continuing discussions with the FDA regarding its proposed STR product. The Company's phase III trial in multiple myeloma and other STR studies were placed on clinical hold by the FDA in November 2000, after some phase I/II patients developed a serious delayed toxicity. The Company has discussed with the FDA a revised pivotal trial plan for STR in patients with refractory or relapsed multiple myeloma, and submitted a protocol for a new radiation dosimetry study. The FDA requested that the Company conduct this study to collect additional radiation dosimetry data from a small number of patients, to demonstrate the accuracy of the method proposed for use in calculating dose in the pivotal trials, and select dose levels likely to produce an appropriate safety profile. In the first quarter of 2002 the Company plans to begin enrolling multiple myeloma patients in this dosimetry study. Based on the results of this study and subject to approval from the FDA, the Company plans to initiate a revised pivotal trial program. The pivotal trials cannot begin until the Company receives authorization from the FDA.

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Item 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

        None.

PART III

Item 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

        (a)  Directors. The information required by this item is incorporated herein by reference to the section captioned "Election of Directors" in the Company's Proxy Statement for the Annual Meeting of Shareholders to be held on May 2, 2002, filed with the Securities and Exchange Commission (the "Commission") pursuant to Section 14(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act").

        (b)  Executive Officers. Information with respect to the Company's executive officers is set forth below.

Name	Age	Position with the Company
Douglass B. Given, MD, PhD	50	President, Chief Executive Officer and Director
Wolfgang Oster, MD	45	Chief Operating Officer
Richard L. Anderson	62	Senior VP, Chief Financial Officer and Secretary
Karen Auditore-Hargreaves, PhD	49	Senior Vice President, Research and Development
Becky J. Bottino	53	Senior Vice President, Technical Operations
Linda T. Findlay	53	Vice President, Human Resources
Neile A. Grayson	41	Vice President, Medical and Regulatory Affairs
Richard G. Ghalie, MD	44	Vice President, Corporate Development
Melinda G. Kile	45	Vice President and Controller
Leslie J. Sabo	53	Vice President, Manufacturing
Anna L. Wight	47	Vice President, Legal

Business Experience

Douglass B. Given, MD, PhD,  was appointed President, CEO and a Director of NeoRx Corporation in July 2001. Dr. Given is an Executive-in-Residence at Bay City Capital LLC. From November, 2000 to July 2001, Dr. Given served as a business advisor to NeoRx Corporation. He was formerly Corporate Senior Vice President and Chief Technology Officer, Mallinckrodt, Inc. from August 1999 to October 2000. From January 1993 to July 1999, Dr. Given served as CEO and a Director of Progenitor, Inc. and Mercator Genetics, Inc. He has held positions as Vice President, Schering Plough Research Institute; Vice President, Monsanto / GD Searle Research Laboratories; and Medical Advisor, Lilly Research Laboratories. Dr. Given holds a MD and a PhD from the University of Chicago, and an MBA from the Wharton School of Business, University of Pennsylvania. He is a Director of SemBioSys Genetics, Inc. and on the Advisory Council to the University of Chicago for Biological Sciences and the Pritzker School of Medicine.

Wolfgang Oster, MD,  joined NeoRx as Chief Operating Officer in June 2001 from US Bioscience, Inc., which merged with MedImmune, Inc. At US Bioscience, he served as Executive Vice President of Worldwide Clinical Research. During his almost 10 years at US Bioscience, Dr. Oster also served as a board member of its European pharmaceutical divisions located in the UK and Netherlands, and as Managing Director for International R&D and Business Development. Previously, Dr. Oster held senior positions in oncology clinical research at Behringwerke/Hoechst. He holds an appointment as Adjunct Professor of Medicine at Brown University and is a Fellow of the Royal Society of Medicine, UK. Dr. Oster received an MD and a Fellowship in Internal Medicine as well as Hematology and Medical Oncology at the University of Mainz Medical School, Germany. Dr. Oster also holds a Habilitation Venia Legendi from the University of Freiberg, Germany.

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Richard L. Anderson  was appointed Senior Vice President and Chief Financial Officer and Secretary in September 2001. Mr. Anderson held the position of President, Chief Operating Officer and Chief Financial Manager and Secretary at NeoRx Corporation from December 1998 to March 2001. He held the position of Senior Vice President, Finance and Operations, Chief Financial Officer, and Secretary from September 1997 to December 1999. He was Senior Vice President and Chief Financial Officer from January 1996 to August 1997. From November 1994 to January 1997, Mr. Anderson was Vice President and Controller at Mosaix Inc., a provider of computer telephony integration products and services. From September 1993 to October 1994, Mr. Anderson was Vice President of Finance, Chief Financial Officer and Secretary of Merix Corporation (formerly a division of Tektronix), a manufacturer of printed circuit boards. Mr. Anderson holds an MS degree in Management from Johns Hopkins University, a MS degree in Solid State Physics from the University of Maryland, a BS in Physics from Bucknell University and is a Certified Public Accountant.

Karen Auditore-Hargreaves, PhD,  was promoted to Senior Vice President, Research and Development in September 2001 and previously served as Vice President, Research and Development since May 1999. Prior to joining the Company, she was Vice President of Research, at CellPro, Inc. and was responsible for the development of products for the selection, activation and expansion of human hematopoietic cells. Prior to joining CellPro, Dr. Hargreaves held research management positions with Oculon Corporation, PATH and Genetic Systems Corporation. Dr. Hargreaves holds a Ph.D. in Genetics from the University of California, Davis and received her postdoctoral training at the Massachusetts Institute of Technology Center for Cancer Research.

Becky J. Bottino  was promoted to Senior Vice President, Technical Operations in September 2001 and previously served as Vice President, Operations since September 1997. She was the Company's Director of Manufacturing and Product Development from October 1996 through September 1997, Director of Product Development from 1992 to 1994, and Manager of Product Development from 1989 to 1992. Ms. Bottino joined NeoRx in 1985 as a Research Technologist. She holds a MS degree in Chemistry from the University of Washington and a BS degree from the University of Utah.

Linda Findlay  was promoted to Vice President, Human Resources in September 2001 and joined NeoRx in May 2000 as Director of Human Resources. Previously, she was with Danzas Corporation as Vice President, Human Resources. Prior to Danzas, she was with Genetic Systems, Muzak Limited Partnership, Thousand Trails Inc. and PACCAR, Inc. Ms. Findlay received a BA in Political Science from the University of Washington and an MS in Human Resource Management from Seattle Pacific University. She holds a Senior Professional in Human Resources (SPHR) certification.

Richard Ghalie, MD,  joined NeoRx as Vice President, Medical and Regulatory Affairs in July 2001. Prior to joining NeoRx, Dr. Ghalie was Senior Franchise Medical Director, Specialty Therapeutics at Immunex, Inc. from November 2000 to July 2001. He has also held the following positions at Immunex: Senior Director Pharmaceutical Development from November 1999 to October 2000, Medical Director of Clinical Development from April 1995 to October 1999 and Associate Medical Director Clinical Development September 1994 to March 1995. In these positions, Dr. Ghalie provided medical leadership and directed numerous clinical programs for agents in oncology, neurology and tumor immunology. Dr. Ghalie received an M.D. from Saint-Joseph University, School of Medicine, Lebanon; an M.S. from the University of Paris VII, France; an Advanced Degree in Statistics and Epidemiology from the University of Paris XI, France; and an MBA from the University of Washington.

Neile Grayson, PhD,  came to NeoRx in October 2001 as Vice President, Corporate Development to lead new business and corporate development initiatives. Previously, Dr. Grayson was with Mallinckrodt, Inc., where she held key management positions including Senior Director of Corporate Discovery Research from July 2000 to January 2001, Director of Corporate Discovery Research from August 1997 to July 2000, Director of Technology Assessment and Portfolio Planning from 1996 to 1997 and August 1999 to January 2001. She received her postdoctoral training and was a Fellow at the National Institute of

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Diabetes and Digestive and Kidney Diseases. Dr. Grayson has a BS in Chemistry from Randolph-Macon College and a PhD in Medicinal Chemistry from the Medical College of Virginia, Commonwealth University.

Melinda G. Kile  was promoted to Vice President and Controller in September 2001 and had previously served as the Controller since January 1998. She also served as Chief Accounting Officer from February 2001 to September 2001 and as Secretary from March 2001 to September 2001. She joined NeoRx from Perstorp Xytec, Inc., where she was Vice President and Chief Financial Officer from March 1996 to January 1998. Prior to joining Perstorp Xytec, Ms. Kile was Controller at Tree Top, Inc., and held a number of positions in finance and marketing from April 1983 through March 1996. Ms. Kile is a Certified Public Accountant and received a BS in Accounting from Central Washington University.

Les Sabo  was promoted to Vice President, Manufacturing in September 2001 and joined NeoRx in April 2001 as Plant Manager and has responsibility for the manufacturing plant in Denton, Texas. Previously, Mr. Sabo was employed by Mallinckrodt, Inc. for 21 years, most recently as Director of Nuclear Medicine Operations. He was responsible for the manufacturing facility at Maryland Heights, Missouri and 37 radiopharmacies throughout the US. Other positions held at Mallinckrodt include Director of Manufacturing, Director of Quality, and Quality Assurance Manager for the Nuclear Medicine Division, US. Previously, Mr. Sabo was Manager, Stability and Analytical Method Development with Heun / Norwood, a pharmaceutical contract manufacturer. Mr. Sabo has a BA degree in Chemistry from Southern Illinois University.

Anna Lewak Wight, JD,  was promoted to Vice President, Legal in September 2001 and previously served as Director of Intellectual Property since joining NeoRx in 1994. She previously was a partner in the law firm of Morrison & Foerster, managing their Seattle intellectual property practice. Ms. Wight was also a partner in the intellectual property law firm of Harness, Dickey and Pierce in Michigan, where she established and chaired the Biotechnology and Medical Arts Group. Ms. Wight received a JD from Wayne State University Law School and an MS from the Genetics Program at Michigan State University.

        (c)  Compliance with Section 16(a) of the Exchange Act.  The information required by this item is incorporated herein by reference to the section captioned "Compliance With Section 16(a) of the Securities Exchange Act of 1934" in the Company's Proxy Statement for the Annual Meeting of Shareholders to be held on May 2, 2002 filed with the Commission pursuant to Section 14 (a) of the Securities Exchange Act of 1934 (the "Exchange Act").

Item 11.    EXECUTIVE COMPENSATION

        The information required by this item is incorporated herein by reference to the sections captioned "Executive Compensation" in the Company's Proxy Statement for the Annual Meeting of Shareholders to be held on May 2, 2002, filed with the Commission pursuant to Section 14(a) of the Exchange Act.

Item 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

        The information required by this item is incorporated herein by reference to the section captioned "Security Ownership of Certain Beneficial Owners and Management" in the Company's Proxy Statement for the Annual Meeting of Shareholders to be held on May 2, 2002, filed with the Commission pursuant to Section 14 (a) of the Exchange Act.

Item 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

        The information required by this item is incorporated herein by reference to the section captioned "Certain Relationships and Related Transactions with Management" in the Company's Proxy Statement for the Annual Meeting of Shareholders to be held on May 2, 2002, filed with the Commission pursuant to Section 14(a) of the Exchange Act.

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PART IV

Item 14.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)

(1) Financial Statements—See Index to Financial Statements.



(a)

(2) Financial Statement Schedules—Not applicable.



(a)

(3) Exhibits—See Exhibit Index filed herewith.



(b)

Reports on Form 8-K—

Form 8-K dated October 1, 2001, relating to a presentation updating cancer therapies.

(c)

Exhibits—See Exhibit Index filed herewith.

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SIGNATURES

        Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

NEORX CORPORATION
(Registrant)

/s/  RICHARD L. ANDERSON Richard L. Anderson
Senior VP and Chief Financial Officer
(Principal Financial and
Accounting Officer, Secretary)

Date: March 29, 2002

        Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated:

/s/  DOUGLASS B. GIVEN Douglass B. Given	President, Chief Executive Officer and Director (Principal Executive Officer)	March 29, 2002
/s/  FRED B. CRAVES Fred B. Craves	Chairman of the Board of Directors	March 29, 2002
/s/  JACK L. BOWMAN Jack L. Bowman	Director	March 29, 2002
/s/  E. ROLLAND DICKSON E. Rolland Dickson	Director	March 29, 2002
/s/  CARL S. GOLDFISCHER Carl S. Goldfischer	Director	March 29, 2002
/s/  ALAN A. STEIGROD Alan A. Steigrod	Director	March 29, 2002

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EXHIBIT INDEX

Exhibit	Description	Incorporation by Reference to
3.1(a)	Restated Articles of Incorporation, dated April 29, 1996	*
3.1(b)	Articles of Amendment, dated March 31, 1997, to Restated Articles of Incorporation	**
3.1(c)	Articles of Amendment, dated August 8, 1997, to Restated Articles of Incorporation	XXXXX
3.2	Bylaws, as amended, of the registrant	XXXXX
10.1	Restated 1994 Stock Option Plan (‡)	•
10.2	Lease Agreement for 410 West Harrison facility, dated February 15, 1996, between NeoRx Corporation and Diamond Parking, Inc	#
10.3	Amendment No. 1, dated August 14, 2000, to Lease Agreement between NeoRx Corporation and Dina Corporation	X
10.4	1991 Stock Option Plan for Non-Employee Directors, as amended (‡)	=
10.5	1991 Restricted Stock Plan (‡)	******
10.6	Agreement, dated as of December 15, 1995
10.7	Stock Option Agreement, dated July 30, 2001, between NeoRx Corporation and Douglass B. Given (‡)	•
10.8	Indemnification Agreement (‡)	#
10.9	Form of Key Executive Severance Agreement (‡)	##
10.10	Officer Change in Control Agreement (‡)	XXXXX
10.11	Key Executive Severance Agreement (‡)	XXXXX
10.12	License Agreement, dated June 30, 1999, between NeoRx and The Dow Chemical Company	+
10.13	Credit Facility Agreement, dated February 3, 2000, between NeoRx Corporation and Pharmaceutical Product Development	++
10.14	Facilities Lease, dated July 24, 2000, between NeoRx Corporation and F5 Networks	+++
10.15	Stock Option Agreement, dated December 19, 2000, between NeoRx Corporation and Carl S. Goldfischer (‡)	X
10.16	Stock Option Agreement, dated January 17, 2001, between NeoRx Corporation and Carl S. Goldfischer (‡)	X
10.17	Stock Option Agreement, dated November 16, 2000, between NeoRx Corporation and Douglass Given (‡)	X
10.18	Sublicense Agreement, dated May 15, 1997, between NeoRx Corporation and Roche Molecular Biochemicals. Certain portions of the agreement have been omitted pursuant to a grant of confidential treatment.	^
10.19	Clinical Manufacture and Supply Agreement, dated January 25, 2001, between NeoRx Corporation and ABC Labs, Inc. Certain portions of the agreement have been omitted pursuant to a grant of confidential treatment.	^

10.20	First Amendment to Sublease Agreement, dated March 30, 2001, between NeoRx Corporation and F5 Networks	^^
10.21	Amendment No. 3 to Consulting Agreement, dated January 1, 2002, between NeoRx Corporation and Bay City Capital BD, LLC	&
10.22	Separation Agreement, dated September 13, 2001, between NeoRx Corporation and Richard L. Anderson (‡)	&
10.23	Form of VP Change in Control Agreements (‡)	&
10.24	Clinical Manufacture and Supply Agreement, dated December 1, 2001, between NeoRx Corporation and MURR. Certain portions of the agreement have been omitted pursuant to a grant of confidential treatment.	&
10.25	Facilities Lease, dated February 15, 2002, between NeoRx Corporation and Selig Real Estate Holdings Six	&
10.26	Form of VP Severance Agreements (‡)	&
21	Subsidiaries of NeoRx Corporation	&
23	Consent of KPMG LLP	&

&	Filed herewith.
*	Filed as an exhibit to the Company's Form 10-K for the fiscal year ended December 31, 1996 and incorporated herein by reference.
**	Filed as an exhibit to the Company's Registration Statement on Form S-3 (Registration No. 333-25161), filed April 14, 1997 and incorporated herein by reference.
******	Filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1991 and incorporated herein by reference.
=	Filed as an exhibit to the Company's Registration Statement on Form S-2 (Registration No. 33-71164) effective December 13, 1993 and incorporated herein by reference.
	Filed as an exhibit to the Company's Form 10-K for the fiscal year ended December 31, 1995 and incorporated herein by reference.
•	Filed as an exhibit to the Company's Registration Statement on Form S-8 (Registration No. 333-71368), filed October 10, 2001 and incorporated herein by reference.
#	Filed as an exhibit to the Company's Form 10-Q for the quarterly period ended March 31, 1996 and incorporated herein by reference.
##	Filed as an exhibit to the Company's Form 10-Q for the quarterly period ended June 30, 1996 and incorporated herein by reference.
X	Filed as an exhibit to the Company's Form 10-K for the fiscal year ended December 31, 2000.
XXXXX	Filed as an exhibit to the Company's Form 10-K for the fiscal year ended December 31, 1998.
+	Filed as an exhibit to the Company's Form 10-Q for the quarterly period ended September 30, 1999 and incorporated herein by reference. Certain portions of the agreement have been omitted pursuant to a grant of confidential treatment.

++	Filed as an exhibit to the Company's Form 10-Q for the quarterly period ended March 31, 2000 and incorporated herein by reference. Certain portions of the agreement have been omitted pursuant to a grant of confidential treatment.
+++	Filed as an exhibit to the Company's Form 10-Q for the quarterly period ended September 30, 2000 and incorporated herein by reference. Certain portions of the agreement have been omitted pursuant to a grant of confidential treatment.
‡	Management contract or compensatory plan.
^	Filed as an exhibit to the Company's Form 10-Q for the quarterly period ended March 31, 2001 and incorporated herein by reference. Certain portions of the agreement have been omitted pursuant to a grant of confidential treatment.
^^	Filed as an exhibit to the Company's Form 10-Q for the quarterly period ended March 31, 2001 and incorporated herein by reference.

EX-10.21

EXHIBIT 10.21

Amendment Three to Letter Agreement

WHEREAS, this Amendment Three to Letter Agreement shall be effective January 1, 2002, and amends that certain Letter Agreement made between NeoRx Corporation (hereinafter referred to as NeoRx), 410 West Harrison Street, Seattle, WA 98119, and Bay City Capital BD LLC (hereinafter referred to as Bay City), 750 Battery, Suite 600, San Francisco, CA 94111, said original Letter Agreement being dated August 16, 2000 (and agreed to and accepted by NeoRx Corporation on August 31, 2000) and as amended, and

                WHEREAS, the parties wish to extend the term of said Letter Agreement and further wish to provide for increased compensation to be paid to Bay City for services rendered.

                NOW, THEREFORE, the Letter Agreement, as amended, shall be extended to January 1, 2003 and, further, paragraph 5 (a) of said Letter Agreement shall be modified to provide for increased compensation as follows:

                “5(a):  A retainer fee of Eighty Thousand Dollars ($80,000) shall be payable by NeoRx to Bay City on a quarterly basis; payment due dates shall be January 1, April 1, July 1 and October 1.”

                All other terms and conditions of the Letter Agreement shall remain in full force and effect, as stated.

NeoRx Corporation

By:

Doug Given, M.D., Ph.D.

Chief Executive Officer

Bay City Capital BD LLC

By:

Sanford S. Zweifach

President

EX-10.22

EXHIBIT 10.22

September 13, 2001

Richard L. Anderson

14031 216th Way NE

Woodinville, WA 98072

Re:    Employment; Prior Agreement

Dear Dick:

This letter agreement (“Agreement”) establishes our understanding and agreement.

Upon your signing below the following will constitute the agreement of you and NeoRx Corporation (“NeoRx”)regarding your employment.

The Continuation/Separation Agreement and General Release, dated March 20, 2001 (“Continuation/Separation Agreement”), is hereby rescinded in its entirety, except that: (1) you and NeoRx acknowledge and reaffirm their respective obligations under the NeoRx Corporation Invention, Confidentiality and Noncompetition Agreement, dated January 22, 1997, and the Nondisclosure and Return of Materials terms contained in Section 7.1 and Section 7.2 of the Key Executive Severance Agreement, dated January 22, 1997, each between NeoRx and you; (2) the confidentiality and release provisions in the Continuation/Separation Agreement shall continue to be effective as to events arising before and through March 20, 2001; and (3) the Change of Control Agreement, dated February 17, 1999, between NeoRx and you shall continue to be terminated as of March 20, 2001 and you and NeoRx shall enter into a new Change of Control Agreement in substantially the form attached to this Agreement as Exhibit A (“Change of Control Agreement").

You will be employed by NeoRx as an at will employee, which means that either you or NeoRx may terminate your employment at any time for any reason, with or without notice, with or without cause, in their discretion.

You will be employed by NeoRx in the position of Senior Vice President and Chief Financial Officer, reporting to either the Chief Executive Officer or the Chief Operating Officer, as determined by NeoRx.  Your areas of responsibility will include (1) financial and administrative functions and (2) various corporate and business development matters, as will be assigned to you by either the CEO or COO from time to time.

You will be paid an initial annual base salary of $238, 000, at regular payroll intervals and subject to withholding and deductions, with future increases, if any, to be determined in the discretion of NeoRx.  For 2002 and subsequent years, you will be eligible for consideration for annual bonus payments in an amount to be determined by NeoRx in its sole discretion, up to twenty-five per cent (25%) of your base salary.

You will receive such employee benefits during your employment as are generally received by other NeoRx employees, except that you will not be entitled to receive a severance agreement similar to what may be offered to other officers.  You will be reimbursed reasonable and necessary business expenses consistent with NeoRx policy.

You will be entitled to severance payments only as described in this paragraph and the Change of Control Agreement.  You will not be entitled to receive any severance payment if your employment continues for less than one (1) year and three (3) months beyond the effective date of this Agreement unless NeoRx terminates your employment without Cause (as defined below) or you terminate your employment for Good Reason (as defined below).  In the event (i) NeoRx terminates your employment without Cause, (ii) you terminate your employment for Good Reason, or (iii) after one year and three months from the effective date of this Agreement, you voluntarily resign for any reason or no reason in accordance with the prior written notice described in this paragraph, you will receive (a) a severance amount equal to one (1) year of your then current base annual salary, to be paid over one (1) year at regular payroll intervals, and (b) for a period of eighteen (18) months after your termination or until you qualify for comparable medical and dental insurance benefits from another employer, whichever occurs first, the premiums for health insurance benefit continuation for you and your family, if applicable, which NeoRx provides to you under the provisions of the Federal Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (known as “COBRA”), to the extent that NeoRx would have paid such premiums had you remained employed by NeoRx.  If your employment is terminated for Cause or if you terminate your employment other than for Good Reason

2

within one (1) year and three (3) months of the effective date of this Agreement, you will receive no severance payment or COBRA payments.  Notwithstanding Section 7.4 of the Change of Control Agreement, you must give NeoRx three (3) months prior written notice of any voluntary resignation and must be available, at NeoRx’s option, to work during the three (3) month period.  For the avoidance of doubt, in order to receive the severance payment and COBRA payments following your voluntary resignation other than for Good Reason, your resignation must not be given until after the first anniversary of the effective date of this Agreement.  Nothing in this paragraph affects or alters the at will status of your employment.

Your outstanding stock options will continue to be handled in accordance with the terms of their original grants and the terms of the Restated 1994 Stock Option Plan (the “Plan”), including vesting; provided, however, that in the event (i) NeoRx terminates your employment without Cause, (ii) you terminate your employment for Good Reason, or (iii), more than one (1) year after the effective date of this Agreement, you voluntarily resign your employment with NeoRx for any reason or no reason in accordance with the prior written notice described in the preceding paragraph, NeoRx will accelerate the vesting of all of your unvested stock options (incentive and nonqualified stock options) that are currently outstanding and all of your nonqualified stock options that are currently outstanding may be exercised for up to twelve (12) months after such termination, but no later than their normal ten (10) year expiration.

For the purpose of this Agreement, the term "Cause" shall mean cause given by you to NeoRx and shall include, without limitation, the occurrence of one (1) or more of the following events:

(a)           A clear refusal to carry out any of your material lawful duties or any directions of the board of directors or senior management of NeoRx, all reasonably consistent with the duties described in this Agreement;

(b)           Persistent failure to carry out any of your lawful duties described in this Agreement or any directions of the board of directors or senior management reasonably consistent with the duties herein set forth to be performed by you, provided, however, that you have been given reasonable notice and opportunity to correct any such failure;

3

(c)           Violation by you of a state or federal criminal law involving the commission of a crime against NeoRx or any other criminal act involving moral turpitude;

(d)           Current abuse by you of alcohol or controlled substances; deception, fraud, misrepresentation or dishonesty by you; or any incident materially compromising your reputation or ability to represent NeoRx with investors, customers or the public; or

(e)           Any other material violation of any provision of this Agreement by you, subject to notice and an opportunity to cure such violation.

For the purpose of this Agreement, the term "Good Reason" shall mean:

(a)           The assignment to you of any duties materially inconsistent with your position, authority, duties or responsibilities as contemplated by this Agreement or any other action by NeoRx that results in a material diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated and inadvertent action not taken in bad faith and that is remedied by NeoRx promptly after receipt of notice thereof given by you;

(b)           Any failure by NeoRx to pay the compensation contemplated by this Agreement, other than an isolated and inadvertent failure not taken in bad faith and that is remedied by NeoRx promptly after receipt of notice thereof given by you, including a reduction in your annual base salary to a level below the level specified in this Agreement, regardless of any change in your duties or responsibilities;

(c)           NeoRx’s requiring you to be based at any office or location other than its current location or an office that is less than twenty (20) miles from its current location;

(d)           Any failure by NeoRx to comply with and satisfy Section 13 of the Change of Control Agreement; provided, however, that NeoRx’s successor has received at least ten (10) days’ prior written notice from NeoRx or you of the requirements of Section 13 of the Change of Control Agreement; or

(e)           Any other material violation of any provision of this Agreement by NeoRx, subject to notice and an opportunity to cure such violation.

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This Agreement shall be effective as of September 13, 2001.

We look forward to having you join the executive team at NeoRx.

	Best regards,
	Doug Given, M.D., Ph.D.
	Chief Executive Officer
ACCEPTED AND AGREED
Richard L. Anderson
Date:

5

EXHIBIT A

CHANGE OF CONTROL AGREEMENT

This Change of Control Agreement (this “Agreement”), dated as of September 13, 2001, is entered into by and between NEORX CORPORATION, a Washington corporation (the “Company”), and Richard L. Anderson (the “Executive”).

The Board of Directors of the Company (the “Board”) has determined that it is in the best interests of the Company and its shareholders to ensure that the Company will have the continued dedication of the Executive, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined in Section 1 hereof) of the Company.  The Board believes it is imperative to diminish the inevitable distraction of the Executive arising from the personal uncertainties and risks created by a pending or threatened Change of Control, to encourage the Executive’s full attention and dedication to the Company currently and in the event of any threatened or pending Change of Control, and to provide the Executive with reasonable compensation and benefit arrangements upon a Change of Control. 

In order to accomplish these objectives, the Board has caused the Company to enter into this Agreement.

1.             DEFINITIONS

1.1“Change of Control” shall have the definition set forth in Appendix A hereto, which is hereby incorporated by reference.

1.2“Change of Control Date” shall mean the first date on which a Change of Control occurs.

1.3“Employment Period” shall mean the two (2) year period commencing on the Change of Control Date and ending on the second anniversary of such date.

2.             TERM

The term of this Agreement (“Term”) shall commence on the date of this Agreement as first appearing above and shall terminate without further action by either the Company or the Executive on February 17, 2003; provided, however, that if

1

a Change in Control occurs during the Term, the Term shall automatically extend for the duration of the Employment Period.

3.             EMPLOYMENT

3.1          Employment Period

During the Employment Period, the Company hereby agrees to continue the Executive in its employ or in the employ of its affiliated companies, and the Executive hereby agrees to remain in the employ of the Company or its affiliated companies, in accordance with the terms and provisions of this Agreement; provided, however, that either the Company or the Executive may terminate the employment relationship subject to the terms of this Agreement.

3.2          Position and Duties

During the Employment Period, the Executive’s position, authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned at any time during the ninety (90) day period immediately preceding the Change of Control Date.

3.3          Location

During the Employment Period, the Executive’s services shall be performed at the Company’s headquarters on the Change of Control Date or any office that is subsequently designated as the headquarters of the Company and is less than twenty (20) miles from such location.

3.4          Employment at Will

The Executive and the Company acknowledge that, except as may otherwise be provided under any other written agreement between the Executive and the Company, the employment of the Executive by the Company or its affiliated companies is “at will” and may be terminated by either the Executive or the Company or its affiliated companies at any time with or without cause.  Moreover, if prior to the Change of Control Date, the Executive’s employment with the Company or its affiliated companies terminates for any reason, then the Executive shall have no further rights under this Agreement; provided, however, that the Company may not avoid liability for any termination payments that would have been required during the Employment Period pursuant to Section 8 hereof by terminating the Executive prior to the Employment Period where such termination is carried out in anticipation of a Change

2

of Control and the principal motivating purpose is to avoid liability for such termination payments.

4.             ATTENTION AND EFFORT

During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive will devote all of his productive time, ability, attention and effort to the business and affairs of the Company and the discharge of the responsibilities assigned to him hereunder, and will use his reasonable best efforts to perform faithfully and efficiently such responsibilities.  It shall not be a violation of this Agreement for the Executive to (a) serve on corporate, civic or charitable boards or committees, (b) deliver lectures, fulfill speaking engagements or teach at educational institutions, (c) manage personal investments, or (d) engage in activities permitted by the policies of the Company or as specifically permitted by the Company, so long as such activities do not significantly interfere with the performance of the Executive’s responsibilities in accordance with this Agreement.  It is expressly understood and agreed that to the extent any such activities have been conducted by the Executive prior to the Employment Period, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) during the Employment Period shall not thereafter be deemed to interfere with the performance of the Executive’s responsibilities to the Company.

5.             COMPENSATION

As long as the Executive remains employed by the Company during the Employment Period, the Company agrees to pay or cause to be paid to the Executive, and the Executive agrees to accept in exchange for the services rendered hereunder by him, the following compensation:

5.1          Salary

The Executive shall receive an annual base salary (the “Annual Base Salary”), at least equal to the annual salary established by the Board or the Compensation Committee of the Board (the “Compensation Committee”) or the Chief Executive Officer for the fiscal year in which the Change of Control Date occurs.  The Annual Base Salary shall be paid in substantially equal installments and at the same intervals as the salaries of other executives of the Company are paid.  The Board or the Compensation Committee or the Chief Executive Officer shall review the Annual Base Salary at least annually and shall determine in good faith and consistent with any generally applicable Company policy any increases for future years.

3

5.2          Bonus

In addition to the Annual Base Salary, the Executive shall be awarded, for each fiscal year ending during the Employment Period, an annual bonus (the “Annual Bonus”) in cash at least equal to the average annualized (for any fiscal year consisting of less than twelve (12) full months) bonus paid or payable (including by reason of any deferral and including the value of any stock awards and the compensation expense disclosed in the Company’s financial statements for the grant of any stock options) to the Executive by the Company and its affiliated companies in respect of the three fiscal years immediately preceding the fiscal year in which the Change of Control Date occurs.  Each Annual Bonus shall be paid no later than ninety (90) days after the end of the fiscal year for which the Annual Bonus is awarded, unless the Executive shall elect to defer the receipt of the Annual Bonus.

6.             BENEFITS

6.1          Incentive, Retirement and Welfare Benefit Plans; Vacation

During the Employment Period, the Executive shall be entitled to participate, subject to and in accordance with applicable eligibility requirements, in such fringe benefit programs as shall be generally made available to other executives of the Company and its affiliated companies from time to time during the Employment Period by action of the Board (or any person or committee appointed by the Board to determine fringe benefit programs and other emoluments), including, without limitation, paid vacations; any stock purchase, savings or retirement plan, practice, policy or program; and all welfare benefit plans, practices, policies or programs (including, without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans or programs).

6.2          Expenses

During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable employment expenses incurred by him in accordance with the policies, practices and procedures of the Company and its affiliated companies in effect for the executives of the Company and its affiliated companies during the Employment Period.

7.             TERMINATION

During the Employment Period, employment of the Executive may be terminated as follows, but, in any case, the nondisclosure provisions set forth in

4

Section 10 hereof shall survive the termination of this Agreement and the termination of the Executive’s employment with the Company:

7.1          By the Company or the Executive

At any time during the Employment Period, the Company may terminate the employment of the Executive with or without Cause (as defined below), and the Executive may terminate his employment for Good Reason (as defined below) or for any reason, upon giving the Notice of Termination (as defined below).

7.2          Automatic Termination

This Agreement and the Executive’s employment during the Employment Period shall terminate automatically upon the death or Total Disability of the Executive.  The term “Total Disability” as used herein shall mean the Executive’s inability (with such accommodation as may be required by law and which places no undue burden on the Company), as determined by a physician selected by the Company and acceptable to the Executive, to perform the duties set forth in Section 3.2 hereof for a period or periods aggregating twelve (12) weeks in any three hundred sixty-five (365) day period as a result of physical or mental illness, loss of legal capacity or any other cause beyond the Executive’s control, unless the Executive is granted a leave of absence by the Board.  The Executive and the Company hereby acknowledge that the duties specified in Section 3.2 hereof are essential to the Executive’s position and that Executive’s ability to perform those duties is the essence of this Agreement.

7.3          Notice of Termination

Any termination by the Company or by the Executive during the Employment Period shall be communicated by the Notice of Termination to the other party given in accordance with Section 12 hereof.  The term “Notice of Termination” shall mean a written notice that (a) indicates the specific termination provision in this Agreement relied upon and (b) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated.  The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance that contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company hereunder or preclude the Executive or the Company from asserting such fact or circumstance in enforcing the Executive’s or the Company’s rights hereunder.

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7.4          Date of Termination

During the Employment Period, “Date of Termination” means (a) if the Executive’s employment is terminated by reason of death, at the end of the calendar month in which the Executive’s death occurs, (b) if the Executive’s employment is terminated by reason of Total Disability, immediately upon a determination by the Company of the Executive’s Total Disability, and (c) in all other cases, ten (10) days after the date of personal delivery or mailing of the Notice of Termination.  The Executive’s employment and performance of services will continue during such ten (10) day period; provided, however, that the Company may, upon notice to the Executive and without reducing the Executive’s compensation during such period, excuse the Executive from any or all of his duties during such period.

8.             TERMINATION PAYMENTS

In the event of termination of the Executive’s employment during the Employment Period, all compensation and benefits set forth in this Agreement shall terminate except as specifically provided in this Section 8.

8.1          Termination by the Company Other Than for Cause or by the Executive for Good Reason

If during the Employment Period the Company terminates the Executive’s employment other than for Cause or the Executive terminates his employment for Good Reason, the Executive shall be entitled to:

(a)           receive payment of the following accrued obligations (the “Accrued Obligations”):

(i)            the Annual Base Salary through the Date of Termination to the extent not theretofore paid;

(ii)           the product of (x) the Annual Bonus payable with respect to the fiscal year in which the Date of Termination occurs and (y) a fraction the numerator of that is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is three hundred sixty-five (365); and

(iii)          any compensation previously deferred by the Executive (together with accrued interest or earnings thereon, if any) and any accrued vacation pay that would be payable under the Company’s standard policy, in each case to the extent not theretofore paid;

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(b)           for one year after the Date of Termination or until the Executive qualifies for comparable medical and dental insurance benefits from another employer, whichever occurs first, the Company shall pay the Executive’s premiums for health insurance benefit continuation for the Executive and his family members, if applicable, which the Company provides to the Executive under the provisions of the federal Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”), to the extent that the Company would have paid such premiums had the Executive remained employed by the Company (such continued payment is hereinafter referred to as “COBRA Continuation”);

(c)           an amount as severance pay equal to one (1) times the Annual Base Salary for the fiscal year in which the Date of Termination occurs; and

(d)           immediate vesting of all outstanding stock options previously granted to the Executive by the Company.

8.2          Termination for Cause or Other Than for Good Reason

If during the Employment Period the Executive’s employment shall be terminated by the Company for Cause or by the Executive for other than Good Reason, this Agreement shall terminate without further obligation on the part of the Company to the Executive, other than the Company’s obligation to pay the Executive (a) the Annual Base Salary through the Date of Termination, (b)  the amount of any compensation previously deferred by the Executive, and (c) any accrued vacation pay that would be payable under the Company’s standard policy, in each case to the extent theretofore unpaid.

8.3          Expiration of Term

In the event the Executive’s employment is not terminated prior to expiration of the Term, this Agreement shall terminate without further obligation on the part of the Company to the Executive, other than the Company’s obligation to pay the Executive the product of (a) the Annual Bonus payable with respect to the fiscal year in which the Term expired and (b) a fraction the numerator of which is the number of days in the current fiscal year through the end of the Term and the denominator of which is three hundred sixty-five (365).

8.4          Termination Because of Death or Total Disability

If during the Employment Period the Executive’s employment is terminated by reason of the Executive’s death or Total Disability, this Agreement shall terminate automatically without further obligation on the part of the Company to the Executive or his legal representatives under this Agreement, other than the Company’s obligation to pay the Executive the Accrued Obligations (which shall be paid to the Executive’s estate or beneficiary, as applicable in the case of the Executive’s death), and to provide COBRA Continuation.

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8.5          Payment Schedule

All payments of Accrued Obligations, or any portion thereof payable pursuant to this Section 8, shall be made to the Executive within ten (10) working days of the Date of Termination.  Any payments payable to the Executive pursuant to Section 8.1(c) hereof shall be made to the Executive in a lump sum within ten (10) working days of the Date of Termination.

8.6          Cause

For purposes of this Agreement, “Cause” means cause given by the Executive to the Company and shall include, without limitation, the occurrence of one (1) or more of the following events:

(a)           A clear refusal to carry out any material lawful duties of the Executive or any directions of the Board or senior management of the Company, all reasonably consistent with the duties described in Section 3.2 hereof;

(b)           Persistent failure to carry out any lawful duties of the Executive described in Section 3.2 hereof or any directions of the Board or senior management reasonably consistent with the duties herein set forth to be performed by the Executive, provided, however, that the Executive has been given reasonable notice and opportunity to correct any such failure;

(c)           Violation by the Executive of a state or federal criminal law involving the commission of a crime against the Company or any other criminal act involving moral turpitude;

(d)           Current abuse by the Executive of alcohol or controlled substances; deception, fraud, misrepresentation or dishonesty by the Executive; or any incident materially compromising the Executive’s reputation or ability to represent the Company with investors, customers or the public; or

(e)           Any other material violation of any provision of this Agreement by the Executive, subject to the notice and opportunity-to-cure requirements of Section 11 hereof.

8.7          Good Reason

For purposes of this Agreement, “Good Reason” means

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(a)           The assignment to the Executive of any duties materially inconsistent with the Executive’s position, authority, duties or responsibilities as contemplated by Section 3.2 hereof or any other action by the Company that results in a material diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated and inadvertent action not taken in bad faith and that is remedied by the Company promptly after receipt of notice thereof given by the Executive;

(b)           Any failure by the Company to comply with any of the provisions of Section 5 or Section 6 hereof, other than an isolated and inadvertent failure not taken in bad faith and that is remedied by the Company promptly after receipt of notice thereof given by the Executive;

(c)           The Company’s requiring the Executive to be based at any office or location other than that described in Section 3.3 hereof;

(d)           Any failure by the Company to comply with and satisfy Section 13 hereof; provided, however, that the Company’s successor has received at least ten (10) days’ prior written notice from the Company or the Executive of the requirements of Section 13 hereof; or

(e)           Any other material violation of any provision of this Agreement by the Company, subject to the notice and opportunity-to-cure requirements of Section 11 hereof.

8.8          Excess Parachute Limitation

If any portion of the payments or benefits for the Executive under this Agreement, the letter agreement, effective as of the date hereof, or any other agreement or benefit plan of the Company (including stock option plan) would be characterized as an “excess parachute payment” to the Executive under Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”), the Executive shall be paid an excise tax that the Executive owes under Section 4999 of the Code as a result of such characterization, such excise tax to be paid to the Executive at least ten (10) days prior to the date that he is obligated to make the excise tax payment.  The determination of whether and to what extent any payments or benefits would be “excess parachute payments” and the date by which any excise tax shall be due, shall be determined in writing by recognized tax counsel selected by the Company and reasonably acceptable to the Executive.

9.             REPRESENTATIONS, WARRANTIES AND OTHER CONDITIONS

In order to induce the Company to enter into this Agreement, the Executive represents and warrants to the Company as follows:

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9.1          Health

The Executive is in good health and knows of no physical or mental disability that, with any accommodation that may be required by law and that places no undue burden on the Company, would prevent him from fulfilling his obligations hereunder.  The Executive agrees, if the Company requests, to submit to reasonable periodic medical examinations by a physician or physicians designated by, paid for and arranged by the Company.  The Executive agrees that the examination’s medical report shall be provided to the Company.

9.2          No Violation of Other Agreements

The Executive represents that neither the execution nor the performance of this Agreement by the Executive will violate or conflict in any way with any other agreement by which the Executive may be bound.

10.          NONDISCLOSURE; RETURN OF MATERIALS

10.1        Nondisclosure

Except as required by his employment with the Company, the Executive will not, at any time during the term of employment by the Company, or at any time thereafter, directly, indirectly or otherwise, use, communicate, disclose, disseminate, lecture upon or publish articles relating to any confidential, proprietary or trade secret information without the prior written consent of the Company.  The Executive understands that the Company will be relying on this Agreement in continuing the Executive’s employment, paying him compensation, granting him any promotions or raises, or entrusting him with any information that helps the Company compete with others.

10.2        Return of Materials

All documents, records, notebooks, notes, memoranda, drawings or other documents made or compiled by the Executive at any time, or in his possession, including any and all copies thereof, shall be the property of the Company and shall be held by the Executive in trust and solely for the benefit of the Company, and shall be delivered to the Company by the Executive upon termination of employment or at any other time upon request by the Company.

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11.          NOTICE AND CURE OF BREACH

Whenever a breach of this Agreement by either party is relied upon as justification for any action taken by the other party pursuant to any provision of this Agreement, other than clause (a), (b), (c) or (d) of Section 8.6 hereof, before such action is taken, the party asserting the breach of this Agreement shall give the other party at least twenty (20) days’ prior written notice of the existence and the nature of such breach before taking further action hereunder and shall give the party purportedly in breach of this Agreement the opportunity to correct such breach during the twenty (20) day period.

12.          FORM OF NOTICE

Every notice required by the terms of this Agreement shall be given in writing by serving the same upon the party to whom it was addressed personally or by registered or certified mail, return receipt requested, at the address set forth below or at such other address as may hereafter be designated by notice given in compliance with the terms hereof:

If to the Executive:Richard L. Anderson
14031 216th Way NE
Woodinville, WA  98072

If to the Company:NeoRx Corporation
410 West Harrison
Seattle, Washington  98119
Attn:  President

With a copy to:Perkins Coie LLP
1201 Third Avenue, 40th Floor
Seattle, Washington 98101-3099
Attn:  James R. Lisbakken

Except as set forth in Section 7.4 hereof, if notice is mailed, such notice shall be effective upon mailing.

13.          ASSIGNMENT

This Agreement is personal to the Executive and shall not be assignable by the Executive.

The Company shall assign to and require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all the

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business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place.  As used in this Agreement, “Company” shall mean NeoRx Corporation and any successor to its business and/or assets as aforesaid that assumes and agrees to perform this Agreement by operation of law, or otherwise.  All the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors and permitted assigns.

14.          WAIVERS

No delay or failure by any party hereto in exercising, protecting or enforcing any of its rights, titles, interests or remedies hereunder, and no course of dealing or performance with respect thereto, shall constitute a waiver thereof.  The express waiver by a party hereto of any right, title, interest or remedy in a particular instance or circumstance shall not constitute a waiver thereof in any other instance or circumstance.  All rights and remedies shall be cumulative and not exclusive of any other rights or remedies.

15.          AMENDMENTS IN WRITING

No amendment, modification, waiver, termination or discharge of any provision of this Agreement, or consent to any departure therefrom by either party hereto, shall in any event be effective unless the same shall be in writing, specifically identifying this Agreement and the provision intended to be amended, modified, waived, terminated or discharged and signed by the Company and the Executive, and each such amendment, modification, waiver, termination or discharge shall be effective only in the specific instance and for the specific purpose for which given.  No provision of this Agreement shall be varied, contradicted or explained by any oral agreement, course of dealing or performance or any other matter not set forth in an agreement in writing and signed by the Company and the Executive.

16.          APPLICABLE LAW

This Agreement shall in all respects, including all matters of construction, validity and performance, be governed by, and construed and enforced in accordance with, the laws of the State of Washington, without regard to any rules governing conflicts of laws.

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17.          ARBITRATION; ATTORNEYS’ FEES

Except in connection with enforcing Section 10 hereof, for which legal and equitable remedies may be sought in a court of law, any dispute arising under this Agreement shall be subject to arbitration.  The arbitration proceeding shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association (the “AAA Rules”) then in effect, conducted by one arbitrator either mutually agreed upon or selected in accordance with the AAA Rules.  The arbitration shall be conducted in King County, Washington, under the jurisdiction of the Seattle office of the American Arbitration Association.  The arbitrator shall have authority only to interpret and apply the provisions of this Agreement, and shall have no authority to add to, subtract from or otherwise modify the terms of this Agreement.  Any demand for arbitration must be made within sixty (60) days of the event(s) giving rise to the claim that this Agreement has been breached.  The arbitrator’s decision shall be final and binding, and each party agrees to be bound to by the arbitrator’s award, subject only to an appeal therefrom in accordance with the laws of the State of Washington.  Either party may obtain judgment upon the arbitrator’s award in the Superior Court of King, County, Washington.

If it becomes necessary to pursue or defend any legal proceeding, whether in arbitration or court, in order to resolve a dispute arising under this Agreement, the prevailing party in any such proceeding shall be entitled to recover its reasonable costs and attorneys’ fees.

18.          SEVERABILITY

If any provision of this Agreement shall be held invalid, illegal or unenforceable in any jurisdiction, for any reason, including, without limitation, the duration of such provision, its geographical scope or the extent of the activities prohibited or required by it, then, to the full extent permitted by law, (a) all other provisions hereof shall remain in full force and effect in such jurisdiction and shall be liberally construed in order to carry out the intent of the parties hereto as nearly as may be possible, (b) such invalidity, illegality or unenforceability shall not affect the validity, legality or enforceability of any other provision hereof, and (c) any court or arbitrator having jurisdiction thereover shall have the power to reform such provision to the extent necessary for such provision to be enforceable under applicable law.

19.          ENTIRE AGREEMENT

This Agreement constitutes the entire agreement between the Company and the Executive with respect to the subject matter hereof, and all prior or contemporaneous oral or written communications, understandings or agreements between the Company

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and the Executive with respect to such subject matter are hereby superseded and nullified in their entireties, except that the letter agreement, effective as of the date hereof, between the Company and the Executive and those agreements referred to therein shall continue in full force and effect to the extent stated in the letter agreement and not superseded by Section 10 hereof.

20.          WITHHOLDING

The Company may withhold from any amounts payable under this Agreement such federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation.

21.          COUNTERPARTS

This Agreement may be executed in counterparts, each of which counterparts shall be deemed an original, but all of which together shall constitute one and the same instrument.

22.          COORDINATION WITH LETTER AGREEMENT

The letter agreement regarding the Executive's employment with the Company that the parties are entering into contemporaneously with this Agreement provides for certain forms of severance and benefit payments in the event of termination of the Executive's employment under certain conditions.  This Agreement is in addition to the letter agreement and in no way supersedes or nullifies the letter agreement.  Nevertheless, it is possible for termination of employment to fall within the scope of both agreements.  In such event, payments made to the Executive under Section 8.1 hereof shall be coordinated with payments made to the Executive under the letter agreement as follows: 

(a)           COBRA Continuation under this Agreement need not be provided to the extent COBRA continuation is provided under the letter agreement; and

(c)           the severance payment required under Section 8.1(c) hereof shall be paid in addition to any severance payment required under the letter agreement.

[Signature page follows.]

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IN WITNESS WHEREOF, the parties have executed and entered into this Agreement effective on the date first set forth above.

NEORX CORPORATION
By
	Doug Given, M.D., Ph.D.
	Its Chief Executive Officer
EXECUTIVE
	Richard L. Anderson

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APPENDIX A

For purposes of this Agreement, a “Change of Control” shall mean:

(a)           A “Board Change” that, for purposes of this Agreement, shall have occurred if a majority (excluding vacant seats) of the seats on the Board are occupied by individuals who were neither (i) nominated by a majority of the Incumbent Directors nor (ii) appointed by directors so nominated.  An “Incumbent Director” is a member of the Board who has been either (i) nominated by a majority of the directors of the Company then in office or (ii) appointed by directors so nominated, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person (as hereinafter defined) other than the Board; or

(b)           The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of (i) twenty percent (20%) or more of either (A) the then outstanding shares of Common Stock of the Company (the “Outstanding Company Common Stock”) or (B) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”), in the case of either (A) or (B) of this clause (i), which acquisition is not approved in advance by a majority of the Incumbent Directors, or (ii) thirty-three percent (33%) or more of either (A) the Outstanding Company Common Stock or (B) the Outstanding Company Voting Securities, in the case of either (A) or (B) of this clause (ii), which acquisition is approved in advance by a majority of the Incumbent Directors; provided, however, that the following acquisitions shall not constitute a Change of Control:  (x) any acquisition by the Company, (y) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (z) any acquisition by any corporation pursuant to a reorganization, merger or consolidation, if, following such reorganization, merger or consolidation, the conditions described in clauses (i), (ii) and (iii) of subsection (c) of this Appendix A are satisfied; or

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(c)           Approval by the shareholders of the Company of a reorganization, merger or consolidation, in each case, unless, immediately following such reorganization, merger or consolidation, (i) more than sixty percent (60%) of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities immediately prior to such reorganization, merger or consolidation in substantially the same proportion as their ownership immediately prior to such reorganization, merger or consolidation of the Outstanding Company Common Stock and the Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding the Company, any employee benefit plan (or related trust) of the Company or such corporation resulting from such reorganization, merger or consolidation and any Person beneficially owning, immediately prior to such reorganization, merger or consolidation, directly or indirectly, thirty-three percent (33%) or more of the Outstanding Company Common Stock or the Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, thirty-three percent (33%) or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation or the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors, and (iii) at least a majority of the members of the board of directors of the corporation resulting from such reorganization, merger or consolidation were the Incumbent Directors at the time of the execution of the initial agreement providing for such reorganization, merger or consolidation; or

(d)           Approval by the shareholders of the Company of (i) a complete liquidation or dissolution of the Company or (ii) the sale or other disposition of all or substantially all the assets of the Company, other than to a corporation with respect to which immediately following such sale or other disposition, (A) more than sixty percent (60%) of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities immediately prior to such sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the Outstanding Company

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Common Stock and the Outstanding Company Voting Securities, as the case may be, (B) no Person (excluding the Company, any employee benefit plan (or related trust) of the Company or such corporation and any Person beneficially owning, immediately prior to such sale or other disposition, directly or indirectly, thirty-three percent (33%) or more of the Outstanding Company Common Stock or the Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, thirty–three percent (33%) or more of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors, and (C) at least a majority of the members of the board of directors of such corporation were approved by a majority of the Incumbent Directors at the time of the execution of the initial agreement or action of the Board providing for such sale or other disposition of the Company’s assets.

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EX-10.23

EXHIBIT 10.23

The Company has entered into the attached form of Key Executive Change of Control Agreement with the following executive officers as of the following dates:

Name	Date
Linda T. Findlay	10/30/2001
Neile A. Grayson	10/30/2001
Richard G. Ghalie	10/30/2001
Melinda G. Kile	10/30/2001
Leslie J. Sabo	10/30/2001

All of the agreements, except that of Ms. Grayson, provide for severance pay equal to 50% of the executive’s then current annual base salary.  Ms. Grayson’s agreement provides for severance payments equal to 75% of her current annual base salary, and bonus, if employment is terminated during the Initial Term of her agreement.

NEORX CORPORATION

CHANGE OF CONTROL AGREEMENT (VP)

This Change of Control Agreement (VP) (this “Agreement”), dated as of               , 20     , is entered into by and between NEORX CORPORATION, a Washington corporation (as supplemented by Section 13, the “Company”), and              (the “Executive”).

The Board of Directors of the Company (the “Board”) has determined that it is in the best interests of the Company and its shareholders to ensure that the Company will have the continued dedication of the Executive, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined in Section 1 hereof) of the Company.  The Board believes it is imperative to diminish the inevitable distraction of

the Executive arising from the personal uncertainties and risks created by a pending or threatened Change of Control, to encourage the Executive’s full attention and dedication to the Company currently and in the event of any threatened or pending Change of Control, and to provide the Executive with reasonable compensation and benefit arrangements upon a Change of Control.

In order to accomplish these objectives, the Board has caused the Company to enter into this Agreement.

1.             Definitions

1.1           “Change of Control” shall have the definition set forth in Appendix A hereto, which is hereby incorporated by reference.

1.2           “Change of Control Date” shall mean the first date on which a Change of Control occurs.

1.3           “Employment Period” shall mean the two (2) year period commencing on the Change of Control Date and ending on the second anniversary of such date.

1.4           “Severance Agreement” shall mean the Key Executive Severance Agreement, dated as of the date hereof, between the parties, as it may be amended from time to time, that provides for certain benefits related to termination of the Executive’s employment that are unrelated to a Change of Control.

2.             Term

The initial term of this Agreement (“Initial Term”) shall be for a period of one (1) year from the date of this Agreement as first appearing above; provided, however, that this Agreement shall automatically renew for successive additional one (1) year periods (“Renewal Terms”) unless notice of nonrenewal is given by either party to the other at least ninety (90) days prior to the end of the Initial Term or any Renewal Term, and provided further that if a Change in Control occurs during the Term, the Term shall automatically extend for the duration of the Employment Period.  The (“Term”) of this Agreement shall be the Initial Term plus Renewal Terms and, if applicable, the duration of the Employment Period.  At the end of the Term, this Agreement shall terminate without further action by either the Company or the Executive.

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3.             Employment

3.1          Employment Period

During the Employment Period, the Company hereby agrees to continue the Executive in its employ or in the employ of its affiliated companies, and the Executive hereby agrees to remain in the employ of the Company or its affiliated companies, in accordance with the terms and provisions of this Agreement; provided, however, that either the Company or the Executive may terminate the employment relationship subject to the terms of this Agreement.

3.2          Position and Duties

During the Employment Period, the Executive’s position, authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned at any time during the ninety (90) day period immediately preceding the Change of Control Date.

3.3          Location

During the Employment Period, the Executive’s services shall be performed at the Company’s headquarters on the Change of Control Date or any office that is subsequently designated as the headquarters of the Company and is less than twenty (20) miles from such location.

3.4          Employment at Will

The Executive and the Company acknowledge that, except as may otherwise be provided under any other written agreement between the Executive and the Company, the employment of the Executive by the Company or its affiliated companies is “at will” and may be terminated by either the Executive or the Company or its affiliated companies at any time with or without cause.  Moreover, if prior to the Change of Control Date, the Executive’s employment with the Company or its affiliated companies terminates for any reason, then the Executive shall have no further rights under this Agreement; provided, however, that the Company may not avoid liability for any termination payments that would have been required during the Employment Period pursuant to Section 8 hereof by terminating the Executive prior to the Employment Period where such termination is carried out in anticipation of a Change of Control and the principal motivating purpose is to avoid liability for such termination payments.

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4.             Attention And Effort

During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive will devote all of his productive time, ability, attention and effort to the business and affairs of the Company and the discharge of the responsibilities assigned to him hereunder, and will use his reasonable best efforts to perform faithfully and efficiently such responsibilities.  It shall not be a violation of this Agreement for the Executive to (a) serve on corporate, civic or charitable boards or committees, (b) deliver lectures, fulfill speaking engagements or teach at educational institutions, (c) manage personal investments, or (d) engage in activities permitted by the policies of the Company or as specifically permitted by the Company, so long as such activities do not significantly interfere with the performance of the Executive’s responsibilities in accordance with this Agreement.  It is expressly understood and agreed that to the extent any such activities have been conducted by the Executive prior to the Employment Period, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) during the Employment Period shall not thereafter be deemed to interfere with the performance of the Executive’s responsibilities to the Company.

5.             Compensation

As long as the Executive remains employed by the Company during the Employment Period, the Company agrees to pay or cause to be paid to the Executive, and the Executive agrees to accept in exchange for the services rendered hereunder by him, the following compensation.

5.1          Salary

The Executive shall receive an annual base salary (the “Annual Base Salary”), at least equal to the annual salary established by the Board or the Compensation Committee of the Board (the “Compensation Committee”) or the Chief Executive Officer for the fiscal year in which the Change of Control Date occurs.  The Annual Base Salary shall be paid in substantially equal installments and at the same intervals as the salaries of other executives of the Company are paid.  The Board or the Compensation Committee or the Chief Executive Officer shall review the Annual Base Salary at least annually and shall determine in good faith and consistent with any generally applicable Company policy any increases for future years.

5.2          Bonus

In addition to the Annual Base Salary, the Executive shall be awarded, for each fiscal year ending during the Employment Period, an annual bonus (the “Annual

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Bonus”) in cash at least equal to the average annualized (for any fiscal year consisting of less than twelve (12) full months) bonus paid or payable (including by reason of any deferral and including the value of any stock awards and the compensation expense disclosed in the Company’s financial statements for the grant of any stock options) to the Executive by the Company and its affiliated companies in respect of the three fiscal years immediately preceding the fiscal year in which the Change of Control Date occurs.  Each Annual Bonus shall be paid no later than ninety (90) days after the end of the fiscal year for which the Annual Bonus is awarded, unless the Executive shall elect to defer the receipt of the Annual Bonus.

6.             Benefits

6.1          Incentive, Retirement and Welfare Benefit Plans; Vacation

During the Employment Period, the Executive shall be entitled to participate, subject to and in accordance with applicable eligibility requirements, in such fringe benefit programs as shall be generally made available to other executives of the Company and its affiliated companies from time to time during the Employment Period by action of the Board (or any person or committee appointed by the Board to determine fringe benefit programs and other emoluments), including, without limitation, paid vacations; any stock purchase, savings or retirement plan, practice, policy or program; and all welfare benefit plans, practices, policies or programs (including, without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans or programs).

6.2          Expenses

During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable employment expenses incurred by him in accordance with the policies, practices and procedures of the Company and its affiliated companies in effect for the executives of the Company and its affiliated companies during the Employment Period.

7.             Termination

During the Employment Period, employment of the Executive may be terminated as follows, but, in any case, the nondisclosure provisions set forth in Section 10 hereof shall survive the termination of this Agreement and the termination of the Executive’s employment with the Company:

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7.1          By the Company or the Executive

At any time during the Employment Period, the Company may terminate the employment of the Executive with or without Cause (as defined below), and the Executive may terminate his employment for Good Reason (as defined below) or for any reason, upon giving the Notice of Termination (as defined below).

7.2          Automatic Termination

This Agreement and the Executive’s employment during the Employment Period shall terminate automatically upon the death or Total Disability of the Executive.  The term “Total Disability” as used herein shall mean the Executive’s inability (with such accommodation as may be required by law and which places no undue burden on the Company), as determined by a physician selected by the Company and acceptable to the Executive, to perform the duties set forth in Section 3.2 hereof for a period or periods aggregating twelve (12) weeks in any three hundred sixty-five (365) day period as a result of physical or mental illness, loss of legal capacity or any other cause beyond the Executive’s control, unless the Executive is granted a leave of absence by the Board.  The Executive and the Company hereby acknowledge that the duties specified in Section 3.2 hereof are essential to the Executive’s position and that Executive’s ability to perform those duties is the essence of this Agreement.

7.3          Notice of Termination

Any termination by the Company or by the Executive during the Employment Period shall be communicated by the Notice of Termination to the other party given in accordance with Section 12 hereof.  The term “Notice of Termination” shall mean a written notice that (a) indicates the specific termination provision in this Agreement relied upon and (b) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated.  The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance that contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company hereunder or preclude the Executive or the Company from asserting such fact or circumstance in enforcing the Executive’s or the Company’s rights hereunder.

7.4          Date of Termination

During the Employment Period, “Date of Termination” means (a) if the Executive’s employment is terminated by reason of death, at the end of the calendar

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month in which the Executive’s death occurs, (b) if the Executive’s employment is terminated by reason of Total Disability, immediately upon a determination by the Company of the Executive’s Total Disability, and (c) in all other cases, ten (10) days after the date of personal delivery or mailing of the Notice of Termination.  The Executive’s employment and performance of services will continue during such ten (10) day period; provided, however, that the Company may, upon notice to the Executive and without reducing the Executive’s compensation during such period, excuse the Executive from any or all of his duties during such period.

8.             Termination Payments

In the event of termination of the Executive’s employment during the Employment Period, all compensation and benefits set forth in this Agreement shall terminate except as specifically provided in this Section 8.

8.1         Termination by the Company Other Than for Cause or by the Executive for Good Reason

If during the Employment Period the Company terminates the Executive’s employment other than for Cause or the Executive terminates his employment for Good Reason, the Executive shall be entitled to:

(a)          receive payment of the following accrued obligations (the “Accrued Obligations”):

(i)             the Annual Base Salary through the Date of Termination to the extent not theretofore paid;

(ii)            the product of (x) the Annual Bonus payable with respect to the fiscal year in which the Date of Termination occurs and (y) a fraction the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is three hundred sixty-five (365); provided that, in the event that the Executive is entitled to an amount in respect of the Annual Bonus under Section 8.1(c), he shall receive the amount payable under Section 8.1(c) first and the amount payable under this Section 8.1(a)(ii) only to the extent it exceeds the amount payable under Section 8.1(c); and

(iii)           any compensation previously deferred by the Executive (together with accrued interest or earnings thereon, if any) and any accrued vacation pay that would be payable under the Company’s standard policy, in each case to the extent not theretofore paid;

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(b)           for one year after the Date of Termination or until the Executive qualifies for comparable medical and dental insurance benefits from another employer, whichever occurs first, the Company shall pay the Executive’s premiums for health insurance benefit continuation for the Executive and his family members, if applicable, which the Company provides to the Executive under the provisions of the federal Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”), to the extent that the Company would have paid such premiums had the Executive remained employed by the Company (such continued payment is hereinafter referred to as “COBRA Continuation”);

(c)           an amount equal to fifty percent (50%) of the Annual Bonus that would have been paid to the Executive for the fiscal year in which the Date of Termination falls but for the termination of the Executive’s employment;

(d)           an amount as severance pay equal to fifty percent (50%) of the Annual Base Salary for the fiscal year in which the Date of Termination occurs; and

(e)           immediate vesting of all outstanding stock options previously granted to the Executive by the Company.

8.2          Termination for Cause or Other Than for Good Reason

If during the Employment Period the Executive’s employment shall be terminated by the Company for Cause or by the Executive for other than Good Reason, this Agreement shall terminate without further obligation on the part of the Company to the Executive, other than the Company’s obligation to pay the Executive (a) the Annual Base Salary through the Date of Termination, (b)  the amount of any compensation previously deferred by the Executive, and (c) any accrued vacation pay that would be payable under the Company’s standard policy, in each case to the extent theretofore unpaid.

8.3          Expiration of Term

In the event the Executive’s employment is not terminated prior to expiration of the Term, this Agreement shall terminate without further obligation on the part of the Company to the Executive, other than the Company’s obligation to pay the Executive the product of (a) the Annual Bonus payable with respect to the fiscal year in which the Term expired and (b) a fraction the numerator of which is the number of days in the current fiscal year through the end of the Term and the denominator of which is three hundred sixty-five (365).

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8.4          Termination Because of Death or Total Disability

If during the Employment Period the Executive’s employment is terminated by reason of the Executive’s death or Total Disability, this Agreement shall terminate automatically without further obligation on the part of the Company to the Executive or his legal representatives under this Agreement, other than the Company’s obligation to pay the Executive the Accrued Obligations (which shall be paid to the Executive’s estate or beneficiary, as applicable in the case of the Executive’s death), and to provide COBRA Continuation.

8.5          Payment Schedule

All payments of Accrued Obligations, or any portion thereof payable pursuant to this Section 8, shall be made to the Executive within ten (10) working days of the Date of Termination.  Any payments payable to the Executive pursuant to Section 8.1(c) and (d) hereof shall be made to the Executive in a lump sum within ten (10) working days of the Date of Termination.

8.6          Cause

For purposes of this Agreement, “Cause” means cause given by the Executive to the Company and shall include, without limitation, the occurrence of one (1) or more of the following events:

(a)           a clear refusal to carry out any material lawful duties of the Executive or any directions of the Board or senior management of the Company, all reasonably consistent with the duties described in Section 3.2 hereof;

(b)           persistent failure to carry out any lawful duties of the Executive described in Section 3.2 hereof or any directions of the Board or senior management reasonably consistent with the duties herein set forth to be performed by the Executive, provided, however, that the Executive has been given reasonable notice and opportunity to correct any such failure;

(c)           violation by the Executive of a state or federal criminal law involving the commission of a crime against the Company or any other criminal act involving moral turpitude;

(d)           current abuse by the Executive of alcohol or controlled substances; deception, fraud, misrepresentation or dishonesty by the Executive; or any incident materially compromising the Executive’s reputation or ability to represent the Company with investors, customers or the public; or

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(e)           any other material violation of any provision of this Agreement by the Executive, subject to the notice and opportunity-to-cure requirements of Section 11 hereof.

8.7          Good Reason

For purposes of this Agreement, “Good Reason” means

(a)           the assignment to the Executive of any duties materially inconsistent with the Executive’s position, authority, duties or responsibilities as contemplated by Section 3.2 hereof or any other action by the Company that results in a material diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated and inadvertent action not taken in bad faith and that is remedied by the Company promptly after receipt of notice thereof given by the Executive;

(b)           any failure by the Company to comply with any of the provisions of Section 5 or Section 6 hereof, other than an isolated and inadvertent failure not taken in bad faith and that is remedied by the Company promptly after receipt of notice thereof given by the Executive;

(c)           the Company’s requiring the Executive to be based at any office or location other than that described in Section 3.3 hereof;

(d)           any failure by the Company to comply with and satisfy Section 13 hereof; provided, however, that the Company’s successor has received at least ten (10) days’ prior written notice from the Company or the Executive of the requirements of Section 13 hereof; or

(e)           any other material violation of any provision of this Agreement by the Company, subject to the notice and opportunity-to-cure requirements of Section 11 hereof.

8.8          Excess Parachute Limitation

If any portion of the payments or benefits for the Executive under this Agreement, the Severance Agreement, or any other agreement or benefit plan of the Company (including stock option plan) would be characterized as an “excess parachute payment” to the Executive under Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”), the Executive shall be paid an excise tax that the Executive owes under Section 4999 of the Code as a result of such characterization, such excise tax to be paid to the Executive at least ten (10) days prior to the date that he is obligated to make the excise tax payment.  The determination of

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whether and to what extent any payments or benefits would be “excess parachute payments” and the date by which any excise tax shall be due, shall be determined in writing by recognized tax counsel selected by the Company and reasonably acceptable to the Executive.

9.             Representations, Warranties and Other Conditions

In order to induce the Company to enter into this Agreement, the Executive represents and warrants to the Company as follows:

9.1          Health

The Executive is in good health and knows of no physical or mental disability that, with any accommodation that may be required by law and that places no undue burden on the Company, would prevent him from fulfilling his obligations hereunder.  The Executive agrees, if the Company requests, to submit to reasonable periodic medical examinations by a physician or physicians designated by, paid for and arranged by the Company.  The Executive agrees that the examination’s medical report shall be provided to the Company.

9.2          No Violation of Other Agreements

The Executive represents that neither the execution nor the performance of this Agreement by the Executive will violate or conflict in any way with any other agreement by which the Executive may be bound.

10.          Nondisclosure; Return of Materials

10.1        Nondisclosure

Except as required by his employment with the Company, the Executive will not, at any time during the term of employment by the Company, or at any time thereafter, directly, indirectly or otherwise, use, communicate, disclose, disseminate, lecture upon or publish articles relating to any confidential, proprietary or trade secret information without the prior written consent of the Company.  The Executive understands that the Company will be relying on this Agreement in continuing the Executive’s employment, paying him compensation, granting him any promotions or raises, or entrusting him with any information that helps the Company compete with others.

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10.2        Return of Materials

All documents, records, notebooks, notes, memoranda, drawings or other documents made or compiled by the Executive at any time, or in his possession, including any and all copies thereof, shall be the property of the Company and shall be held by the Executive in trust and solely for the benefit of the Company, and shall be delivered to the Company by the Executive upon termination of employment or at any other time upon request by the Company.

11.          Notice and Cure of Breach

Whenever a breach of this Agreement by either party is relied upon as justification for any action taken by the other party pursuant to any provision of this Agreement, other than clause (a), (b), (c) or (d) of Section 8.6 hereof, before such action is taken, the party asserting the breach of this Agreement shall give the other party at least twenty (20) days’ prior written notice of the existence and the nature of such breach before taking further action hereunder and shall give the party purportedly in breach of this Agreement the opportunity to correct such breach during the twenty (20) day period.

12.          Form of Notice

Every notice required by the terms of this Agreement shall be given in writing by serving the same upon the party to whom it was addressed personally or by registered or certified mail, return receipt requested, at the address set forth below or at such other address as may hereafter be designated by notice given in compliance with the terms hereof:

If to the Executive:
If to the Company:	NeoRx Corporation
	410 West Harrison
	Seattle, Washington  98119
	Attn:  President
With a copy to:	Perkins Coie LLP
	1201 Third Avenue, 40th Floor
	Seattle, Washington 98101-3099
	Attn:  James R. Lisbakken

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Except as set forth in Section 7.4 hereof, if notice is mailed, such notice shall be effective upon mailing.

13.          Assignment

This Agreement is personal to the Executive and shall not be assignable by the Executive.

The Company shall assign to and require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place.  As used in this Agreement, “Company” shall mean NeoRx Corporation and any successor to its business and/or assets as aforesaid that assumes and agrees to perform this Agreement by operation of law, or otherwise.  All the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors and permitted assigns.

14.          Waivers

No delay or failure by any party hereto in exercising, protecting or enforcing any of its rights, titles, interests or remedies hereunder, and no course of dealing or performance with respect thereto, shall constitute a waiver thereof.  The express waiver by a party hereto of any right, title, interest or remedy in a particular instance or circumstance shall not constitute a waiver thereof in any other instance or circumstance.  All rights and remedies shall be cumulative and not exclusive of any other rights or remedies.

15.          Amendments In Writing

No amendment, modification, waiver, termination or discharge of any provision of this Agreement, or consent to any departure therefrom by either party hereto, shall in any event be effective unless the same shall be in writing, specifically identifying this Agreement and the provision intended to be amended, modified, waived, terminated or discharged and signed by the Company and the Executive, and each such amendment, modification, waiver, termination or discharge shall be effective only in the specific instance and for the specific purpose for which given.  No provision of this Agreement shall be varied, contradicted or explained by any oral agreement, course of dealing or performance or any other matter not set forth in an agreement in writing and signed by the Company and the Executive.

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16.          Applicable Law

This Agreement shall in all respects, including all matters of construction, validity and performance, be governed by, and construed and enforced in accordance with, the laws of the State of Washington, without regard to any rules governing conflicts of laws.

17.          Arbitration; Attorneys’ Fees

Except in connection with enforcing Section 10 hereof, for which legal and equitable remedies may be sought in a court of law, any dispute arising under this Agreement shall be subject to arbitration.  The arbitration proceeding shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association (the “AAA Rules”) then in effect, conducted by one arbitrator either mutually agreed upon or selected in accordance with the AAA Rules.  The arbitration shall be conducted in King County, Washington, under the jurisdiction of the Seattle office of the American Arbitration Association.  The arbitrator shall have authority only to interpret and apply the provisions of this Agreement, and shall have no authority to add to, subtract from or otherwise modify the terms of this Agreement.  Any demand for arbitration must be made within sixty (60) days of the event(s) giving rise to the claim that this Agreement has been breached.  The arbitrator’s decision shall be final and binding, and each party agrees to be bound to by the arbitrator’s award, subject only to an appeal therefrom in accordance with the laws of the State of Washington.  Either party may obtain judgment upon the arbitrator’s award in the Superior Court of King, County, Washington.

If it becomes necessary to pursue or defend any legal proceeding, whether in arbitration or court, in order to resolve a dispute arising under this Agreement, the prevailing party in any such proceeding shall be entitled to recover its reasonable costs and attorneys’ fees.

18.          Severability

If any provision of this Agreement shall be held invalid, illegal or unenforceable in any jurisdiction, for any reason, including, without limitation, the duration of such provision, its geographical scope or the extent of the activities prohibited or required by it, then, to the full extent permitted by law, (a) all other provisions hereof shall remain in full force and effect in such jurisdiction and shall be liberally construed in order to carry out the intent of the parties hereto as nearly as may be possible, (b) such invalidity, illegality or unenforceability shall not affect the validity, legality or enforceability of any other provision hereof, and (c) any court or

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arbitrator having jurisdiction thereover shall have the power to reform such provision to the extent necessary for such provision to be enforceable under applicable law.

19.          Entire Agreement

Except as described in Section 22 hereof, this Agreement constitutes the entire agreement between the Company and the Executive with respect to the subject matter hereof, and all prior or contemporaneous oral or written communications, understandings or agreements between the Company and the Executive with respect to such subject matter are hereby superseded and nullified in their entireties, except that the Proprietary Information and Invention Agreement between the Company and the Executive shall continue in full force and effect to the extent not superseded by Section 10 hereof.

20.          Withholding

The Company may withhold from any amounts payable under this Agreement such federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation.

21.          Counterparts

This Agreement may be executed in counterparts, each of which counterparts shall be deemed an original, but all of which together shall constitute one and the same instrument.

22.          Coordination With Severance Agreement

The Severance Agreement that the parties are entering into contemporaneously with this Agreement provides for certain forms of severance and benefit payments in the event of termination of the Executive’s employment.  This Agreement is in addition to the Severance Agreement and in no way supersedes or nullifies the Severance Agreement.  Nevertheless, it is possible that termination of employment by the Company or by the Executive may fall within the scope of both agreements.  In such event, payments made to the Executive under Section 8.1 hereof shall be coordinated with payments made to the Executive under Section 5.1 of the Severance Agreement as follows:

(a)           Accrued Obligations under this Agreement shall be paid first, in which case Accrued Obligations need not be paid under the Severance Agreement;

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(b)           COBRA Continuation under this Agreement shall be provided first, in which case COBRA Continuation need not be provided under the Severance Agreement; and

(c)           the severance payment required under Section 8.1(d) hereof shall be paid first, in which case any severance payment required under Section 5.1(c) of the Severance Agreement need not be paid.

IN WITNESS WHEREOF, the parties have executed and entered into this Agreement effective on the date first set forth above.

NEORX CORPORATION
By:
	Name:
	Its:
EXECUTIVE
By:
	Name:

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APPENDIX A

For purposes of this Agreement, a “Change of Control” shall mean:

(a)           A “Board Change” that, for purposes of this Agreement, shall have occurred if a majority (excluding vacant seats) of the seats on the Board are occupied by individuals who were neither (i) nominated by a majority of the Incumbent Directors nor (ii) appointed by directors so nominated.  An “Incumbent Director” is a member of the Board who has been either (i) nominated by a majority of the directors of the Company then in office or (ii) appointed by directors so nominated, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person (as hereinafter defined) other than the Board; or

(b)           The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of (i) twenty percent (20%) or more of either (A) the then outstanding shares of Common Stock of the Company (the “Outstanding Company Common Stock”) or (B) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”), in the case of either (A) or (B) of this clause (i), which acquisition is not approved in advance by a majority of the Incumbent Directors, or (ii) thirty-three percent (33%) or more of either (A) the Outstanding Company Common Stock or (B) the Outstanding Company Voting Securities, in the case of either (A) or (B) of this clause (ii), which acquisition is approved in advance by a majority of the Incumbent Directors; provided, however, that the following acquisitions shall not constitute a Change of Control:  (x) any acquisition by the Company, (y) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (z) any acquisition by any corporation pursuant to a reorganization, merger or consolidation, if, following such reorganization, merger or consolidation, the conditions described in clauses (i), (ii) and (iii) of subsection (c) of this Appendix A are satisfied; or

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(c)           Approval by the shareholders of the Company of a reorganization, merger or consolidation, in each case, unless, immediately following such reorganization, merger or consolidation, (i) more than sixty percent (60%) of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities immediately prior to such reorganization, merger or consolidation in substantially the same proportion as their ownership immediately prior to such reorganization, merger or consolidation of the Outstanding Company Common Stock and the Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding the Company, any employee benefit plan (or related trust) of the Company or such corporation resulting from such reorganization, merger or consolidation and any Person beneficially owning, immediately prior to such reorganization, merger or consolidation, directly or indirectly, thirty-three percent (33%) or more of the Outstanding Company Common Stock or the Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, thirty-three percent (33%) or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation or the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors, and (iii) at least a majority of the members of the board of directors of the corporation resulting from such reorganization, merger or consolidation were the Incumbent Directors at the time of the execution of the initial agreement providing for such reorganization, merger or consolidation; or

(d)           Approval by the shareholders of the Company of (i) a complete liquidation or dissolution of the Company or (ii) the sale or other disposition of all or substantially all the assets of the Company, other than to a corporation with respect to which immediately following such sale or other disposition, (A) more than sixty percent (60%) of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities immediately prior to such sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the Outstanding Company

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Common Stock and the Outstanding Company Voting Securities, as the case may be, (B) no Person (excluding the Company, any employee benefit plan (or related trust) of the Company or such corporation and any Person beneficially owning, immediately prior to such sale or other disposition, directly or indirectly, thirty-three percent (33%) or more of the Outstanding Company Common Stock or the Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, thirty–three percent (33%) or more of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors, and (C) at least a majority of the members of the board of directors of such corporation were approved by a majority of the Incumbent Directors at the time of the execution of the initial agreement or action of the Board providing for such sale or other disposition of the Company’s assets.

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EX-10.24

EXHIBIT 10.24

REDACTED VERSION

CLINICAL SUPPLY AGREEMENT

This agreement (the “Agreement”) is entered into effective as of December 1, 2001by and between The Curators of The University of Missouri, a public corporation of the State of Missouri, contracting on behalf of its Research Reactor Center, University of Missouri-Columbia (hereafter “University”), and NeoRx Corporation, a Washington corporation (“NeoRx”).  University and NeoRx may hereafter from time to time be referred to collectively as the “Parties” and individually as a “Party.”

WITNESSETH

WHEREAS, NeoRx has obtained the rights to use certain technology and processes to make, use, sell and distribute certain radiopharmaceutical products for clinical and commercial purposes; and

WHEREAS, University owns facilities and has technical expertise to produce radioisotopes, which are necessary for NeoRx to produce its radiopharmaceutical products; and

WHEREAS, NeoRx desires that University manufacture and supply to and on behalf of NeoRx certain quantities of reactor-produced radioisotopes in radiochemical form from University, and University is willing and able to provide such radioisotopes to and on behalf of NeoRx, all in accordance with the terms and conditions set forth in this Agreement;

NOW THEREFORE, in consideration of the foregoing promises and agreements set forth herein, the Parties agree as follows:

ARTICLE I - DEFINITIONS

1.1           “Affiliate” of a Party means any corporation or other business entity controlled by, controlling or under common control with such Party.  For this purpose, “control” means direct or indirect beneficial ownership of fifty percent (50%) or more of the voting and income interest in such corporation or other business entity.

1.2           “Batch” means a specific quantity of the product intended to have uniform character and quality and produced according to a single manufacturing order during the same cycle of manufacture.

1.3           “Batch Record” means a QA approved copy of the Master Batch Record used for the execution of the processing of a specific Batch.

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1.4           “Calibration Time” means 12 Noon CST the day of manufacture of the Product.

1.5           “Certificate of Analysis” means a written certificate produced by University verifying that a Batch of the Product was Processed in accordance with the Master Batch Record and meets the Release Specifications.

1.6           “cGMP” means the good manufacturing practices required by the FDA and set forth in the FD&C Act or FDA regulations, policies, or guidelines in effect at a particular time for the manufacture, testing and quality control of radiochemicals to be further processed into a radiopharmaceutical drug product.

1.7           “Curie” or “Ci” is a radioactivity measure as defined in general scientific literature.  All references to Curies or Ci amounts are stated in terms of Calibration Time unless otherwise specified.

1.8           “Effective Date” means the date this Agreement is entered into, as indicated in the first paragraph of this Agreement.

1.9           “Facility” means University’s manufacturing facility located at Research Reactor Center, University of Missouri-Columbia.

1.10         “FDA” means the United States Federal Food and Drug Administration and any successor agency.

1.11         “Initial Payment” has the meaning as set forth in Section 4.1.

1.12         “Investigational New Drug” or “IND” means an application document filed with the FDA defining an investigational new drug product for human use.

1.13         “Lot File” means the written record of the Process methodology and testing results related thereto of a specific Batch of Product ordered pursuant to a Purchase Order.  The Lot File serves as the official documentation of the Process and tests performed by University for the specific Batch of Product.

1.14         “Master File” or “MF” means the Master File dossier prepared by University and filed with the FDA, which provides the FDA with specific (and proprietary) chemistry, manufacturing and controls information associated with the Process and the Facility.  University grants to NeoRx permission to reference University’s MF in NeoRx’s regulatory filings with the FDA pertaining to the Product.

1.15         “Master Batch Record” means the document, to be created by University, which sets forth the methodology and formulae for Processing the Product.

1.16         “Minimum Production Capacity” has the meaning as set forth in Section 2.5.

1.17         “MURR” means the Missouri University Research Reactor, which is a research center within University.

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1.18         “New Drug Application” or “NDA” means the application for marketing a new drug product filed with the FDA.

1.19         “Process,” “Processing,” and “Processed” shall have comparable meanings and mean the act of manufacturing, handling, testing, storing, analyzing, packaging, inspecting, labeling and shipping Product in accordance with the Master Batch Record, Release Specifications and Standard Operating Procedures.

1.20         “Product” means Holmium (166) Chloride Processed in accordance with this Agreement.

1.21         “Proprietary Information” means all information concerning a Party (the “Disclosing Party”) which is furnished to or created by (such as notes, analysis, compilations, studies, interpretations or other documents) the other Party or its directors, officers, employees, agents, advisors or Affiliates (collectively, the “Receiving Party”) as a result of entering into this Agreement and in furtherance hereof.  The term Proprietary Information, however, shall not include information which:

(a)           is in the public domain or becomes generally available to the public through no fault of either Party; or

(b)           the Receiving Party can show by documentary evidence was within its possession or control prior to its being furnished to the Receiving Party by or on behalf of the Disclosing Party pursuant hereto, free of any obligation of confidentiality; or

(c)           the Receiving Party can show by documentary evidence that came into its possession or control subsequent to the date of this Agreement from a third party free of any obligation of confidentiality; or

(d)           was independently developed by the Receiving Party without the aid, application or use of the Proprietary Information; or

(e)           is required to be disclosed by law or order of any governmental authority of competent jurisdiction (provided, that in such event, the Receiving Party shall provide the Disclosing Party with notice of such law or order and provide reasonable cooperation in connection with any attempt to challenge or limit the scope of such disclosure).

1.22         “Purchase Order” means the definitive ordering document originated by NeoRx that sets forth the quantity of Product ordered and the delivery information.

1.23         “Release Specifications” means the set of analytical tests, methods,  and acceptance criteria for Product attributes which must be met in order to prove the Product meets the standards of quality, purity, identity and strength filed with the FDA for this substance.  Release Specifications are a critical part of the Process and are filed with the FDA as part of an IND, MF or an NDA.  All Release Specifications are set forth on Exhibit A attached hereto, which were established initially by NeoRx in consultation with University and which may be amended from time to time by written agreement of the Parties and to conform with all

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requirements of the FDA and applicable laws and regulations.  Upon such amendment, University will implement any modified documents and/or procedures pertinent to the revised Release Specifications.

1.24         “Standard Operating Procedures” or “SOPs” means university’s internal written standard operating procedures, designed by University, governing all aspects of Processing the Product, conducting analytical tests of Product, and maintaining records related thereto.

1.25         “Term” has the meaning as set forth in Section 10.1.

1.26         “Waste” means all (a) rejected or unusuable Product, (b) Product not taken  for delivery by NeoRx, for whatever reason, and (c) waste relating to University’s Processing of Product.

ARTICLE II- MANUFACTURE & SALE OF PRODUCT

2.1          Equipment

2.1.1       Installation

The Parties acknowledge that University must  maintain in the Facility sufficient dedicated equipment and associated components (the “Dedicated Equipment”) to produce product.

2.1.2       Exclusivity

(a)           During the Term, University may not use the Dedicated Equipment for any purpose other than cGMP compatible processing of Holmium 166.

(b)           During the Term, University grants to NeoRx the first right to the Holmium 166 production capacity at the University.

2.2          Purchase and Sale of Product

University shall Process and sell to NeoRx, and NeoRx shall purchase from University, during the Term, such quantities of the Product as NeoRx may from time to time order from University.  University shall Process the Product in strict conformity with this Agreement, including without limitation the Master Batch Record, Standard Operating Procedures, Release Specifications and all applicable laws and regulations.

2.3          Orders and Fulfillment

(a)           Purchase Orders.  NeoRx shall deliver to University a written or electronic Purchase Order for the number of Curies that NeoRx desires to purchase no later than fourteen (14) days prior to the date of shipment from University.  Each Curie shall be shipped in such manner, and to such location, as requested by NeoRx in each Purchase Order, provided University is legally able to do so.  Shipment time shall be as mutually agreed, but University

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agrees to make its best efforts to work toward an 8:00 a.m. (central time) shipment time for one Type B cask to Denton, Texas each Monday.

(b)           Additional Provisions in Purchase Orders.  To the extent any Purchase Order, invoice or acknowledgement form contains any provisions additional or contrary to the provisions of this Agreement, such additional or contrary provision shall have no force or effect and the terms of this Agreement shall control unless otherwise agreed in writing by the Parties.

(c)           During the Term, NeoRx agrees to purchase at least 80% of its U.S. Product requirements from the University to the extent that the University can supply these needs.

(d)           Notice of Inability to Fulfill.  University shall notify NeoRx by telephone and in writing immediately if University acquires any information that it will not be able to either (i) fulfill the then most recent Purchase Orders or (ii) maintain Minimum Production Capacity.  University shall promptly notify NeoRx by telephone and in writing of any other production issues (including any proposed or potential shutdown of the Facility for any reason) or other information of which University becomes aware that may affect the regulatory status of the Product or the ability of University to supply Product in accordance with this Agreement or any Purchase Orders.  For planned, extended reactor shutdowns of greater than one week, the University shall notify NeoRx as soon as the shutdown is scheduled but in no case less than 90 days prior to the scheduled shutdown.  For shutdowns of one week’s duration or less, University shall notify NeoRx as soon as possible.

2.4          NeoRx’s Minimum Purchases

In consideration for University’s processing the Product pursuant to this Agreement, NeoRx shall pay to University amounts to purchase the Product based on clause (a) below, unless the parties mutually agree to increase the  monthly fees and capacity requirements pursuant to clause (b) or agree to shift the payment structure to that described in clause (c) as follows:

(a)           Minimum Monthly Fee.   From  the Effective Date through the termination of this Agreement, unless the parties earlier agree in writing to the increases described in clause (b) or shift to the payment structure described in clause (c), NeoRx shall pay to the University [*] per month for its “readiness to serve” (the “Minimum Monthly Fee”).  This Minimum Monthly Fee (i) obligates the University to be prepared to Process the Minimum Production Capacity described in Section 2.5(a) and (ii) also covers the cost of the first 120 Curies (measured at shipping time) of Product per month.

[*]  designates portions of this document that have been omitted pursuant to a request for confidential treatment filed separately with the Commission.

(b)           Increase in Minimum Monthly Fee.  At any time during the Term of this Agreement, the parties may mutually agree in writing to increase the Minimum Monthly Fee in multiples of [*], with each incremental [*] increase resulting in a corresponding increase of the Minimum Production Capacity (defined in Section 2.5(a)) in an amount equal to 10 Ci per batch.  Each agreed upon increase in the Minimum Monthly Fee and Minimum Production Capacity

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shall be effective through the Term of this Agreement, unless the parties otherwise agree to (i) increase such fee and capacity as described, (ii) reduce such fee and capacity in amounts as the parties agree, or (iii) shift to the payment structure described in the following clause (c).

As an example, for illustration purposes only, the parties could agree to increase the Minimum Monthly Fee by [*], which would result in the Minimum Production Capacity being increased by 20 Ci per batch (i.e., to 80 Ci per batch).  This increased Minimum Monthly Fee would cover the cost of the first 160 Ci (measured at shipping time) of product.  The parties could thereafter, at any time during the Term of this Agreement, (i) again agree to increase the Minimum Monthly Fee with a corresponding increase in the Minimum Production Capacity, (ii) reduce the fee and capacity requirements, or (iii) shift to the payment structure described in the following clause (c).

(c)           Minimum Product Purchase.  At any time during the Term of this Agreement, the parties may mutually agree in writing to shift from the payment structure described in Section 2.4 (a) or 2.4(b), as applicable, to the structure described in this Section 2.4(c).  Upon such agreement (i) NeoRx will guarantee to University that it will purchase a minimum of seventy-five (75) Curies of Product per week (the “Minimum Purchase Requirement”), and must purchase such Minimum Purchase Requirement during the remainder of the Term  and (ii) the University will be capable of Producing a single 120 Ci batch on any single day for delivery on Monday (or as otherwise mutually agreed upon each week) in time to meet NeoRx’s shipping requirements (as set forth in section 2.3 (a)). .  From time to time thereafter during the Term of this Agreement, the parties may agree in writing to adjust upward the Minimum Purchase Requirement and the University’s Production Capacity..  Upon agreeing to adjust the Minimum Purchase Requirement, NeoRx will be obligated to continue to purchase no less than such minimum number of Curies during the remainder of the Term.  Once the parties elect the payment structure described in this Section 2.4 (c), the Minimum Monthly Fee described in Section 2.4(a) (or under Section 2.5(b) if the parties have agreed to an increase in such fee) shall no longer apply and NeoRx may not elect to revert back to the payment structure described in Section 2.4(a) or 2.4(b).

(d)           Notwithstanding the above provisions, NeoRx will not be obligated to make payment for any Curies that NeoRx fails to take delivery of as a result of the University’s inability to make the Product available to NeoRx.

2.5          University’s Production Capacity

(a)           Minimum Production Capacity: Subject to the terms and conditions of this Agreement, University will be capable of Processing, and NeoRx will have the right to purchase 60 Curies of Product per calendar week on an ongoing basis throughout the Term (the “Minimum Production Capacity”) with the University being capable of Processing a single 60 Ci batch on any single day for delivery on Monday (or as otherwise mutually agreed upon each week) in time to meet NeoRx’s shipping requirements (as set forth in section 2.3 (a)).

The Parties agree that the Minimum Production Capacity will be based on the calculated activity level at Calibration Time.  The Parties acknowledge that although NeoRx will

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be obligated to make applicable minimum payments to University as described in Section 2.4, NeoRx is not obligated to take delivery of the Curies available within the University’s  Production capacity and that the actual number of Curies University will Process and ship per calendar week will be dependent on the Purchase Orders University receives from NeoRx.

(b)           Shipping Capacity: University shall be obligated to ship a maximum of one (1) type B package per Monday to Denton, Texas.  University shall be additionally obligated to provide up to a maximum of twelve (12) type A packages per week on Monday afternoon and Tuesday afternoon, with a maximum of six (6) per day.

2.6          Responsible Personnel

During the Term of this Agreement, University will staff the Processing of the Product with personnel who are reasonably qualified consistent with industry standards.  University will name a person responsible for production and a person responsible for quality assurance.  The person responsible for quality assurance and the person responsible for Production will in no event be the same person.  If any person named by University terminates his or her employment with University during the Term of this Agreement, University shall replace that individual as soon as possible with someone of a comparable level of experience.

2.7          Waste Disposal

University shall be responsible for the disposition, in accordance with all established regulations, of all Waste generated at University.

ARTICLE III - DELIVERY & TITLE

3.1          Delivery

All Product purchased by NeoRx hereunder shall be delivered F.O.B. Facility.  Risk of loss and title to the Products shall pass to NeoRx upon delivery to and receipt by NeoRx’s designated carrier.

3.2          Shipping Charges

NeoRx, in consultation with University, shall arrange for the shipment of the Product from the University’s dock.  NeoRx shall be responsible for the payment of all shipping charges associated with such shipments.  NeoRx shall make all third-party payment directly.

3.3          Inspection and Acceptance

(a)           Product Conformance: All Product shall comply with the Release Specifications.  In accordance therewith, each Batch of Product delivered to NeoRx shall be accompanied by or promptly followed by a Certificate of Analysis relating to such Batch.  NeoRx may reject any Batch if University fails to comply with Release Specifications or fails to deliver a Certificate of Analysis along with such batch.  If NeoRx rejects a Batch for such reasons, NeoRx may return such Batch to University (at University’s cost).  NeoRx shall not be obligated to pay for such

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rejected Batch (and shall  not be obligated to pay for any shortfall below the Minimum Quantity resulting from such rejected Batches)

(b)           Disputes Regarding Conformance Of A Batch Of Product:The parties agree to select a mutually agreeable independent laboratory as soon as possible after the effective date of this agreement to assist in resolving disputes regarding product conformance.  A sample of the batch of product in dispute will be submitted from University to the independent lab for analysis.  If the laboratory concludes that the product is not in conformance as set forth in subsection (a) above, the University shall pay for the analysis and reimburse NeoRx in accordance with subsection (a) above.  Otherwise, NeoRx shall pay for the analysis and accept the batch.

3.4          Shipping Containers

NeoRx has developed a design for a shipping container (“Container Design”) to be used for the shipment of radiopharmaceutical products.  University owns a number of depleted uranium containers (the “DU Containers”), which are necessary to ship radiopharmaceutical products.  NeoRx agrees to license the use of the Container Design to University for the University’s own internal use on a perpetual, limited, non-exclusive, non-transferable, royalty free basis with no right to sub-license in return for University allowing NeoRx to use six (6) DU Containers, free of charge, during the Term for all orders of the Product.  The DU Containers loaned to NeoRx under this Agreement are to be used solely for transport of radioactivity within MURR or shipment of radioactivity as mutually agreed by NeoRx and the University.  NeoRx shall remain the sole owner of the Container Design and University shall remain the sole owner of all DU Containers; provided, however, that upon termination of this Agreement NeoRx will have the option to lease the six (6) DU Containers for one (1) year after termination of the Agreement at a commercially reasonable rental rate.

ARTICLE IV – PURCHASE  PRICE AND PAYMENT

4.1          Initial Payment

The Parties acknowledge that NeoRx will make a one-time cash payment to University of Four HundredThousand Dollar (US $400,000) (the “Initial Payment”) for costs incurred in preparing to provide serviceson signing this Agreement.  [*] will be paid by December 31, 2001.  The remaining [*] will be paid by May 31, 2002.

4.2          Curie Fee

(a)           Under Minimum Monthly Fee.  NeoRx will pay to University a per Curie fee for Product of [*] per Curie (measured at shipping time) for each Curie purchased in any month in excess of the amount covered by the Minimum Monthly Fee described in Section 2.4(a) (or 2.4(b) if applicable).  The price for each Curie covered by the Minimum Monthly Fee (whether [*] pursuant to Section 2.4(a) or increased pursuant to Section 2.4(b)) shall be [*]/Ci (at shipment time).

(b)           Under Minimum Product Purchase.  If the parties mutually agree that NeoRx will Guarantee a minimum of 75 Ci/week as described in section 2.4.(c), the per Curie fee based on

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the price list set forth on Exhibit B will be applied for the duration of the Term.  Any subsequent adjustment to the Minimum Purchase Requirement may have an effect on the per Curie price payable by NeoRx to be agreed upon by the parties, which effect will be described in an amendment to Exhibit B.

(c)           Basis for Curie Fees.  The Parties agree that the prices set forth in section 4.2(a) above are based on the calculated total Curie content in the Product at the time the Product departs from University’s shipping docks (or upon internal delivery to ABC Laboratories, Inc.), and that the Curie Fee includes the cost of labor, materials, cost of the Dedicated Equipment and overhead to Process, including testing the finished Product and is exclusive of the cost of shipping, and packaging and handling expenses.  The total Curie content in the Product will be determined as described in the Standard Operating Procedure for total activity level.

ARTICLE V - REGULATORY MATTERS

5.1          General

University understands that it will be primarily responsible for ensuring that the Facility and the Process will be cGMP compliant as required by the FDA.  University will (a) create the Master Batch Record and Standard Operating Procedures, which University will comply with in Processing the Product (in addition to complying with the Release Specifications), (b) maintain all required regulatory documents covering the Process and the Facility, and (c) make all such required documents available to NeoRx for its review upon NeoRx’s request.

5.2          New Drug Applications

University shall cooperate with NeoRx with respect to any NDA obligations relating to the Product that are imposed by the FDA or foreign regulations.  NeoRx shall be responsible for obtaining FDA or other regulatory approval for the NDA for any drug products utilizing the Product, and shall own the NDA.  University agrees to comply with all commitments made in the NDA regarding University’s Processing responsibilities, but NeoRx agrees not to make commitments to the FDA on behalf of the University without the University’s prior written approval.

5.3          Master File

University agrees to file its Product related drug master file (MF) by the time NeoRx files its NDA.  University agrees that it will provide NeoRx information necessary for NeoRx to respond to any inquiries from the FDA.   University agrees that it will not make material changes to its (a) raw materials supplier, (b) materials specifications, (c) formulation process, (d) formulation equipment, or (e) testing procedures without prior written notification to NeoRx in order to give NeoRx an opportunity to validate that such changes would have no negative impact on the Product.

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5.4          Notice of Safety Related Information

MURR and NeoRx shall provide to each other prompt notice of any information it receives relating to the safety of the Product, including any confirmed or unconfirmed information on adverse, serious, or unexpected events associated with the use of the Product.  For serious (based on a good faith evaluation), unexpected events, MURR and NeoRx shall give each other notice by telephone within one (1) business day after receipt of the information and followed by written notice not less than one (1) week thereafter.  The Parties shall cooperate in responding to all applicable governmental agencies and filing any reports with such agencies concerning any reactions (including drug experience reports) caused by the Product.  The Parties shall cooperate in providing timely assistance in responding to any complaints relating to commercial goods produced and sold by NeoRx that contain Product.  The costs associated with responding to such complaints shall be borne by NeoRx; provided, however, if the complaint was directly or indirectly caused by University’s failure to Process the Product in strict accordance with the Master Batch Record or Release Specifications, University shall reimburse NeoRx for all reasonable internal and external costs and expenses incurred by NeoRx to appropriately respond to such complaints (up to a maximum of [*] per production batch).

ARTICLE VI - RECORDS AND AUDITS

6.1          Batch Records

University will create the Master Batch Record and related documentation which must conform to all FDA requirements and other applicable laws and regulations.  During the Term of this Agreement, and for five (5) years after NeoRx’s receipt of any particular Batch of Product from University, University shall maintain records relating to such Curie sufficient to substantiate and verify that University met its duties and obligations under this Agreement.  Such records shall include, but not be limited to, records of orders received, raw materials purchased and stored, Batch Records for Product manufactured, work in progress, Processing analyses and release control tests and the like.

6.2          Agency Records and Audits

University shall make available to NeoRx and all applicable government agencies all documents and updates that they have prepared with regard to Processing the Products that are required by law to be filed with any governmental agency.  University shall submit to all inquiries and inspections by any governmental agency with authority to conduct such inquiries and inspections (hereinafter collectively referred to as “Agency”).  University shall promptly notify NeoRx of any Agency interactions and/or correspondence relating to University’s operations that could relate, directly or indirectly, to the Product.  University shall make available for inspection by NeoRx all documents and correspondence received from any Agency that relate in any way to the Process or the Product.  University shall immediately inform NeoRx of all Agency audits that relate in any way to the Process or the Product.  Similarly, NeoRx shall inform University in advance of any Agency planned audits of NeoRx if such audits relate directly to the Products.  University shall immediately provide NeoRx with copies of any regulatory letters or other documents issued by any Agency and received by University in connection with the audit or any inspection relating to the Product.

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6.3          FDA

NeoRx shall obtain and maintain all FDA and other regulatory approvals necessary to enable NeoRx to use the Products as intended under this Agreement.  University shall cooperate with NeoRx as required in order to secure and maintain such governmental and other approvals.

6.4          Inspections

University shall permit indoctrinated employees and/or representatives of NeoRx to enter and conduct a reasonable inspection and/or audit of the Facility and/or the documents associated with the Processing of Product during normal business hours and with at least seventy-two (72) hours advanced notice in order to determine whether the Products are being Processed in conformity with the terms of this Agreement.  In addition, and in conformity with all applicable laws, rules and regulations, University shall permit employees or representatives of NeoRx to inspect Products designated for delivery to NeoRx and otherwise provide NeoRx with such information as it may reasonably be required to determine whether the Products are being Processed in accordance with this Agreement, including without limitation in accordance with the Master Batch Record, Standard Operating Procedures, and all applicable laws, rules and regulations.

ARTICLE VII - REPRESENTATIONS AND WARRANTIES

7.1          Labor and Equipment

University represents that it shall furnish all labor, equipment and facilities necessary to Process Product in the amounts, and in the timely manner, as set forth in each Purchase Order.  University has obtained, and will maintain throughout the Term, all licenses necessary to Process the Product.  University will abide by all applicable rules, regulation, laws and mandates issued by all applicable regulatory bodies.

7.2          Processing Requirements

University represents, warrants and agrees that it will Process all of the Product in strict accordance with this Agreement, including without limitation (i) the Master Batch Record, (ii) the Standard Operating Procedures,(iii) the Release Specifications, (iv) all federal, state and local laws, statutes, regulations or other requirements relating thereto and applicable to the intended use of such Product, and (v) the Master File (once submitted to the FDA).University further represents that it is not a party to any other agreement that could hinder its ability to fulfill its obligations under this Agreement.

7.3          Records Relating to Waste Disposal

University represents that it shall obtain and maintain all waste generator licenses, disposal manifests and other records in accordance with Federal statutes, laws and regulations and the statutes, laws and regulations of the State of Missouri.

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7.4          Changes

University agrees that it will not implement any material revisions or changes to the Product, Process, Master Batch Record or Standard Operating Procedures associated with University’s Processing of the Product for and on behalf of NeoRx without prior written notification to NeoRx in order to give NeoRx an opportunity to validate that such changes would have no negative impact on the Product.  A “material revisions or changes” means any revision or change that would impact (a) the raw materials supplier, (b) materials specifications, (c) formulation process, (d) formulation equipment, or (e) testing procedures   Furthermore, University will not make any changes, material or otherwise, to the Release Specifications without prior written approval of NeoRx.

7.5          Safety Procedures

University represents that it shall have primary responsibility for adopting and enforcing safety procedures for the handling and production of the Products that comply in all material respects with all federal, state and local environmental and occupational safety and health requirements to which University is subject.

ARTICLE VIII - CONFIDENTIAL INFORMATION

8.1          Limitations on Disclosures

Except to the extent expressly authorized by this Agreement, during the Term of this Agreement and for five (5) years thereafter, neither Party shall:

(a)           disclose, publish, or make available any Proprietary Information disclosed to it by the other to any third party, including employees who do not need to know or have access to such Proprietary Information; or

(b)           sell, transfer, or otherwise use or exploit any such Proprietary Information disclosed to it by the other Party; or

(c)           knowingly permit the sale, transfer, use or exploitation by a third party of any such Proprietary Information which may have been disclosed to such third party, including employees who do not need to know or have access to such Proprietary Information.

During the Term of this Agreement, neither Party shall make any press release or other disclosure of the terms of this Agreement without the prior written consent of the other Party, except as required by law or bya court of competent jurisdiction and pursuant to the disclosure requirements of federal or state regulatory agencies, including the United States Securities and Exchange Commission.

8.2          Use of Parties’ Names

Neither Party shall advertise any connection with the other Party nor make use of the other Party’s name or other identifying marks or property, nor make representations, either

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express or implied, without the other Party’s prior written approval.  The prior sentence shall not, however, be construed so as to prevent mention of the contribution of either Party in any scientific publication.

8.3Scholarly Publications

Notwithstanding paragraph 8.1(b) University shall have the right to publish in scholarly journals and make scholarlypresentations concerning any information it may develop as a result of this Agreement.  University shall provide NeoRx with a copy of any proposed scholarly publication or presentation 45 days before submission for publication or presentation to allow NeoRx to review and comment on the publication or presentation and delete any confidential Proprietary Information of NeoRx.  NeoRx may request a 60 day delay of the publication or presentation to allow the preparation of patent applications should the materials disclose an invention.

ARTICLE IX - INDEMNIFICATION

9.1          Indemnification

(a)           Subject to Section 9.2, NeoRx shall defend, indemnify, and hold harmless University, its officers, agents, employees and Affiliates from any third-party loss, claim, action, damage, expense or liability (including defense costs and reasonable attorneys’ fees) arising out of NeoRx’s (a) breach, violation or nonfulfillment of any of its covenant, agreements, representations or warranties under this Agreement, (b) handling, possession, or use of the Products after University’s delivery of the same to NeoRx, (c) negligence or willful misconduct, or (d) breach of any third party’s trade secret rights, except to the extent that such loss, claim, action, damage, expense or liability is based on, arises out of, or is due to the negligence or willful misconduct of, or breach of this Agreement by, University.

(b)           Subject to Section 9.2, to the extent permitted by Missouri law and without waiving sovereign immunity, University shall defend, indemnify, and hold harmless NeoRx, its officers, agents, employees and Affiliates from any third-party loss, claim, action, damage, expense or liability (including defense costs and reasonable attorneys’ fees) arising out of University’s (a) breach, violation or nonfulfillment of any of its covenant, agreements, representations or warranties under this Agreement, (b) handling, possession, or use of the Products prior to University’s delivery of the same to NeoRx, (c) negligence or willful misconduct, (d) disposal of any Waste, or (e) breach of any third party’s trade secret rights, except to the extent that such loss, claim, action, damage, expense or liability is based on, arises out of, or is due to the negligence or willful misconduct of, or breach of this Agreement by, NeoRx.

9.2          No Personal Liability

No shareholder, member, officer, employee or board member (the “Individuals”), individual or collectively, of either University or NeoRx incurs or assumes any individual or personal liability by the execution of this Agreement or by reason of the default of either Party in

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the performance of any of the terms herein.  All such liability of the Individuals of each Party is hereby released by the other Party as a condition of and in partial consideration for the execution of this Agreement.

9.3          Procedure

Each Party agrees to give to the indemnifying Party (a) prompt notice of any claim or suit coming within the purview of the indemnities contained in this Article IX, (b) all relevant facts in its possession or control, subject to the treatment of such information pursuant to Article VIII, (c) the right to exclusive control of the defense of any action (at its sole expense), and (d) its cooperation in the defense of any such action.

ARTICLE X - TERM AND TERMINATION

10.1        Term

(a)           Subject to the Parties’ ability to terminate this Agreement as set forth in this Article X, the “Initial Term” of this Agreement shall commence on the Effective Date and shall continue through December 31,2002 (the “Initial Term”).

(b)           NeoRx shall have the option to renew this Agreement, with the consent of the University which will not be unreasonably withheldunder the same terms and conditions, for one (1) additional twelve (12) month term (the “Extension Term”); provided, that NeoRx shall exercise its option, if at all, in writing with no less than ninety (90) days remaining in the Initial Term.  The Initial Term and Extension Term, if any, unless terminated earlier pursuant to the terms of this Agreement, are referred to herein as the “Term.”

(c)           Notwithstanding clauses (a) and (b) above, the Parties acknowledge that at any time they may agree to replace this Agreement in its entirety with a long-term commercial supply agreement.

10.2        Termination by Either Party

Either Party may terminate this Agreement at any time after the happening of any of the following events; provided, however, that the Party terminating this Agreement shall provide the other with written notice of such termination prior to the date thereof:

(a)           either Party breaches any of its agreements, covenants, representations or warranties as set forth in this Agreement and the breaching Party fails to cure such breach within fifteen (15) days of written notice thereof from the non-breaching Party; or

(b)           University fails to timely fulfill three (3) or more Purchase Orders in any calendar quarter; or

(c)           the FDA (or other governmental agency with authority), Missouri Department of Health or other regulatory agency orders University to cease Processing the Product or orders NeoRx to permanently cease utilizing the Product.

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Notwithstanding any provision in this Agreement to the contrary, University shall continue to Process the Product, and deliver Product in response to any Purchase Order, through the date of termination, unless such Process and delivery requirements are waived in writing by NeoRx.

10.3        Disputes

In the event of a dispute regarding the interpretation of this Agreement, the Parties agree they will endeavor to resolve such dispute amicably.  In the event a dispute cannot be resolved by the Parties, then upon the written request of any Party that includes a summary of the dispute, a senior executive officer of NeoRx and a senior official of MURR shall promptly meet and endeavor to resolve the dispute through good-faith negotiations within thirty (30) days of their receipt of the dispute.

10.4        Return of Information

Upon expiration or termination of this Agreement, each Party shall return all originals and copies the other Party’s Proprietary Information it may have received or created.

10.5        Rights on Termination

(a)           Continuing Obligations.  Upon termination of this Agreement, each of the Parties shall continue to be bound by its obligations under Articles VII, VIII and IX of this Agreement.

(b)           NeoRx’s Additional Remedies.  If NeoRx terminates this Agreement pursuant to Section 10.2(a) (for University’s breach of this Agreement) or Section 10.2(b) (for University’s failure to timely fulfill Purchase Orders), then, in addition to any other remedy available to NeoRx at law:

(i)            during the six (6) months following termination, if requested by NeoRx University shall provide not more thanone hundred and twenty (120) person-hours of the time of University employees, at no additionalcost to NeoRx, to facilitate a transition toa third party facility for Processing the Product

(ii)           within thirty (30) days of such termination, University shall transfer to NeoRx certified copies of all Lot Files relating to batches of Product delivered to NeoRx.. and

(iii)          University will, at NeoRx’s request, continue to Process Product pursuant to the terms and conditions of this Agreement and sell the same to NeoRx at the prices in effect at time of termination for the remainder of the Term.

ARTICLE XI - FORCE MAJEURE

Neither Party hereto shall be liable to the other in damages for, nor shall this Agreement be terminable by reason of, any delay or default in such Party’s performance hereunder if such delay or default is caused by conditions beyond such Party’s control including, but not limited to, acts of God, war, insurrection, civil commotion, destruction of production facilities or materials

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by earthquake, fire, flood or storm, labor disturbances including strikes or lockouts or epidemic (“Force Majeure”).  Each Party hereto agrees to promptly notify the other Party of any event of Force Majeure and to employ all reasonable efforts toward prompt resumption of its performance hereunder when possible if such performance is delayed or interrupted by reason of such event.

ARTICLE XII - MISCELLANEOUS

12.1        Assignment

This Agreement shall be binding upon and inure to the benefit of the Parties, their successors and permitted assigns.  Notwithstanding the foregoing, NeoRx may assign its rights and/or delegate its obligations under this Agreement to any third party. NeoRx will give University immediate notice of any such assignment.  University may not assign its rights and/or delegate its obligations under this Agreement to any third party without NeoRx’s prior written consent.

12.2        Entire Agreement; Amendments; Counterparts

This Agreement, along with each Purchase Order and the attached Exhibits, contains the entire understanding of the Parties hereto relating to the subject matter contained herein, supersedes all prior agreements, promises and understandings of the Parties.  This Agreement may not be modified, amended or any provision waived except by written agreement of the Parties.  This Agreement may be executed in counterparts, each of which shall be deemed to be an original and all of which together shall constitute one and the same agreement.

12.3        Notices

All notices, demands, requests and other communications shall be in writing or by written telecommunication, and shall be given when delivered personally to the addressee or, if mailed, by certified mail, return receipt requested, postage prepaid, or sent by written telecommunication, when delivered to the addresses specified below.  Either Party may from time to time change its address, facsimile number or designated individual by notice to the other Party.

If to NeoRx:	NeoRx Corporation
	410 West Harrison Street
	Seattle, Washington 98119-4007
	Attention: Becky Bottino
If to University:
	Attention:

Such notice, demand, request, and other communications shall be deemed to have been given as of the date so delivered or transmitted by facsimile (as long as the transmitting machine confirms successful transmission) or, if mailed, three (3) business days after the date so mailed, or, if sent by overnight courier service, one (1) business day after the date so sent.

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12.4        Relationship of Parties

The Parties are acting herein as independent contractors and independent employers.  Nothing herein contained shall create or be construed as creating a partnership, joint venture, joint employer or agency relationship between the Parties and no Party shall have the authority to bind the other in any respect.

12.5        No Waiver; Severability

Any provision of this Agreement may be waived at any time in writing executed by the Party for whose benefit such provision exists; provided, however, that the failure to enforce any provision of this Agreement shall not constitute a waiver thereof.  In the event that any provision of this Agreement shall be held invalid or unenforceable under applicable law, the remainder of this Agreement shall remain valid and enforceable, unless such invalidity or unenforceability substantially diminishes the rights and obligations, taken as a whole, of any Party.

12.6        Agreement Approval; Further Assurances

Each Party hereby represents and warrants that all necessary corporate approvals for this Agreement have been obtained, and the person whose signature appears below has the authority necessary to execute this Agreement on behalf of the Party indicated.  Each Party agrees that it shall execute such further documents and perform such further acts as may be necessary to comply with the terms of this Agreement.

12.7        Captions

The captions in this Agreement are solely for convenience of reference and shall not be used for purposes of interpreting or construing the provisions hereof.

12.8        Intellectual Property

No trademark, trade name, logo, trade dress, copyright or license therein, or other intellectual property rights (collectively, “Intellectual Property”) are conveyed by this Agreement, and neither Party shall have the right to use the other Party’s Intellectual Property for any purpose whatsoever without prior written consent.

12.9        Survival

The provisions in Article VII, VIII, IX and XII, and Sections 2.8, 3.4, 6.1, 10.3, 10.4 and 10.5, shall survive the termination of this Agreement.

IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by duly their authorized representatives, effective on this date first set forth above.

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THE CURATORS OF THE UNIVERSITY OF MISSOURI	NEORX CORPORATION
By:	By:
Name:	Name:
Its:	Its:

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EXHIBIT A
RELEASE SPECIFICATIONS

Release Specifications for ¹⁶⁶HoCl₃

Tests	Methods	Specifications
Holmium quantitation	Calculated based on target mass and recovered activity	[*]
Activity concentration	Calculated from Total Activity and Volume	[*]
Specific Activity	Calculated from activity concentration and holmium quantitation	[*]
Radionuclidic purity	Gamma ray spectroscopy Ho1-Q053	[*]
Identification	Gamma ray spectroscopy Ho1-Q053	[*]
Radiochemical purity	ITLC – SG Ho1-Q052	[*]

*Calibration time is 12 Noon CST, the day of shipment.

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EXHIBIT B

PER CURIE PRICE LIST

75 Ci/WEEK GUARANTEE*  **

Curies Per Week Purchase Level*	Price Per Curie
First 100	[*]
Next 50	[*]
Next 50	[*]
Next 100	[*]

For example, if NeoRx purchases 170 Curies of Product in a given week, the price for that week would be:

100 x  [*]

50   x  [*]

20   x  [*]

Week’s total: [*]

*              If the parties agree to increase the Minimum Purchase Requirements, the scale will be adjusted accordingly.  For example, if NeoRx guarantees 101 Ci/week, the first 150 Curies will be at [*], the next 50 at [*] and the next 100 at [*].

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EX-10.25

EXHIBIT 10.25

ELLIOTT BAY OFFICE PARK

OFFICE LEASE

THIS LEASE, made the 15th day of February, 2002, by and between SELIG REAL ESTATE HOLDINGS SIX, a Washington general partnership, whose address is 1000 Second Avenue, Suite 1800, Seattle, Washington, 98104-1046, hereinafter referred to as “Lessor” and NEORX CORPORATION INC., a Washington corporation, whose address is 410 West Harrison Street, Seattle, Washington, 98119, hereinafter referred to as “Lessee”.

1.             DESCRIPTION, Lessor in consideration of the agreements contained in this lease, does hereby lease to Lessee, upon the terms and conditions hereinafter set forth, Suite 500 consisting of approximately 20,764 rentable square feet* (hereinafter referred to as “Premises”) situated on the 5th floor level of the Elliott Bay Office Park, 300 Elliott Avenue West, City of Seattle, State of Washington 98119, the legal description of which is:

Parcel A:  All of Block 9, D.T. Denny’s Waterfront Addition to the City of Seattle, according to the plat recorded in Volume 2 of Plats, Page 61, in King County, Washington.

Parcel B:  Block 161, Seattle Tidelands.

*Rentable square footage stated above is an estimate of the rentable square footage and is based on the Building Owners and Managers Association Standard Method for Measuring Area in Office Buildings (ANSI/BOMA Z65.1-1996).  For purposes of this lease, the parties agree that the rentable square footage of the Premises is 20,764.

2.             TERM,  The term of this lease shall be for a period of eighty-four (84) months, commencing on that date which is five (5) business days after Lessor has completed construction of the tenant improvements described in Article 38 below (“Tenant Improvements”) and given notice to Lessee that the Premises are ready for occupancy, except that the term shall not commence earlier than June 1, 2002 without Lessee’s prior written consent.  The term shall expire eighty-four (84) months after the commencement date.  Lessor will use its best efforts to complete construction of all Tenant Improvements and tender possession of the Premises to Lessee on or before June 1, 2002.  If the term has not commenced by August 1, 2002, this lease will automatically terminate without notice and be of no further force or effect.

The parties acknowledge that Lessee desires to negotiate an early termination of its lease of premises at 501 Elliott Avenue West (the “Current Lease”) effective June 1, 2002, and that if the Tenant Improvements are not substantially complete and the Premises ready for occupancy on that date, Tenant may suffer damages as a

result of the delay.  Accordingly, the parties agree that if the Current Lease has been terminated on June 1, 2002, and if the Tenant Improvements are not substantially complete and ready for occupancy on June 1, 2002, then Lessor shall assume and pay, and shall hold Lessee harmless from and against any and all holdover costs that Lessee may incur under the Current Lease resulting from Lessee having to hold over in the leased premises except to the extent that the delay in completion of the Tenant Improvements is caused by events of Force Majeure or Tenant Delay.  For purposes of this lease, the term Force Majeure shall mean acts of God, strikes, lockouts, labor troubles, inability to procure materials despite commercially reasonable efforts to do so, orders or directives of governmental bodies, and other similar causes beyond a party’s reasonable control.  The term Tenant Delay shall mean the failure of Lessee to provide construction documents to Lessor on or before March 11, 2002, or any delay in fact caused by a change requested by Lessee to the construction documents approved by Lessor.

3.             RENT, Lessee covenants and agrees to pay Lessor rent each month in advance on the first day of each calendar month.  Rent shall be computed at the annual base rental rate of $26.00 per rentable square foot.  Rent for any fractional calendar month, at the beginning or end of the term, shall be the pro rated portion of the rent computed on an annual basis (assuming a 365-day year).  Provided however, if Lessee is unable to terminate the Current Lease by the commencement date of the term of this lease, and remains liable for payment of rent pursuant to the terms of the Current Lease, then rent for the Premises shall abate for so long as Lessee is obligated to pay rent under the Current Lease through October 31, 2002.  However, for each of the months after the commencement date and through October, 2002 that Lessee does not pay any rent to Lessor, then the base rental rate set forth above shall be increased by 30¢ per rentable square foot, e.g., if Lessee is required to pay rent at 501 Elliott Avenue West for the months of June, July, August and September, and if Lessee does not pay any rent to Lessor during those months, then Lessee’s annual rental rate for the Premises shall be revised to the annual rental rate of $27.20 effective October 1, 2002, i.e., 30¢ x 4 months = $1.20 + $26.00 = $27.20.

4.             CONSIDERATION,  As consideration for the execution of this lease, Lessee has this date paid to Lessor the sum of $44,988.67, receipt of which is hereby acknowledged.  In the event Lessee fully complies with all the terms and conditions of this lease, but not otherwise, an amount equal to such sum shall be credited on the last month’s rental on the term of this lease.

5.             USES, Lessee agrees that Lessee will use and occupy said Premises for general offices and related purposes and for no other purposes.

6.             RULES AND REGULATIONS,  Lessee and their agents, employees, servants or those claiming under Lessee will at all times observe, perform and abide by all of the Rules and Regulations printed on this instrument (if any), and any reasonable rules and regulations applicable to all of the tenants in the building that may be hereafter promulgated by Lessor, all of which it is covenanted and agreed by the parties hereto shall be and are hereby made a part of this lease.

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7.             CARE AND SURRENDER OF PREMISES,  Lessee shall take good care of the Premises and shall promptly make all necessary repairs except those required herein to be made by Lessor.  At the expiration or sooner termination of this lease, Lessee, without notice, will immediately and peacefully quit and surrender the Premises broom clean, in good order, condition and repair (damage by reasonable wear, the elements, or fire excepted).  Lessee shall be responsible for removal of all of Lessee’s personal property and fixtures from the Premises, (excepting fixtures that are a part of the initial Tenant Improvements and excepting any property of the Lessor) including, but not limited to, the removal of Lessee’s communication and video cabling, telephone equipment and moveable signage.  Lessee shall be responsible for repairing any damage to the Premises caused by such removal.  If Lessee fails to remove and restore the Premises at lease expiration, then Lessor shall have the right to remove said property and restore the Premises and Lessee shall be responsible for all costs associated therewith.  Lessee shall also be responsible for those costs incurred by Lessor for removing debris Lessee may discard in the process of preparing to vacate the Premises to the extent those costs exceed normal costs of garbage removal upon cleaning the Premises and disposal of Lessee’s personal property remaining in the Premises.

8.             ALTERATIONS, Lessee shall not make any alterations or improvements in, or additions to (collectively, “Alterations”) said Premises where the total cost of the project exceeds $15,000 without first obtaining the written consent of Lessor, whose consent shall not be unreasonably withheld.  Lessor’s consent shall also be required (and shall not be unreasonably withheld) for any alterations to building electrical, plumbing or mechanical systems.  All such Alterations shall be at the sole cost and expense of Lessee and shall become the property of Lessor and shall remain in and be surrendered with the Premises as a part thereof at the termination of this lease, without disturbance, molestation or injury.  Lessee shall provide notice to Lessor of any planned Alterations for which Lessor’s consent is not required, together with a copy of the plans for those Alterations.  If Lessee makes any Alterations that involve changes to building electrical, plumbing or mechanical systems, Lessee shall use contractors approved by Lessor for any changes to those systems.

9.             RESTRICTIONS, Lessee will not use or permit to be used in said Premises anything that will increase the rate of insurance on said building or any part thereof, nor anything that may be dangerous to life or limb; nor in any manner deface or injure said building or any part thereof; nor overload any floor or part thereof; nor permit any objectionable noise or odor to escape or to be emitted from said Premises, or do anything or permit anything to be done upon said Premises in any way tending to create a nuisance or to disturb any other tenant or occupant of any part of said building.  Lessee, at Lessee’s expense, will comply with all health, fire and police regulations respecting said Premises, except that Lessee will not be responsible for the cost of capital improvements that are required generally and not as a result solely of Lessee’s use of the Premises.  The Premises shall not be used for lodging or sleeping, and no animals or birds will be allowed in the building.

10.           WEIGHT RESTRICTIONS, Safes, furniture or bulky articles may be moved in or out of said Premises only at such hours and in such manner as will least inconvenience other tenants, which hours and manner shall be at the reasonable

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discretion of Lessor.  No safe or other article of over 2,000 pounds shall be moved into said Premises without the consent of Lessor, whose consent shall not be unreasonably withheld, and Lessor shall have the right to locate the position of any article of weight in said Premises if Lessor so desires.

11.           SIGN RESTRICTION, No sign, picture, advertisement or notice shall be displayed, inscribed, painted or affixed to any of the glass or woodwork of the building without the prior approval of Lessor.  Notwithstanding the foregoing, Lessor shall provide building standard signage identifying Lessee on the building lobby reader-board, and standard building signage identifying Lessee in the elevator lobby on the 5^th floor of the building.  Lessee shall have the right to install and maintain a sign with its logo that is visible from the 5^th floor lobby in the reception area of the Premises.

12.           LOCKS, No additional locks shall be placed upon any doors of the Premises, except that Lessee may install and maintain an electronic lock system at the entry to the Premises that is compatible with the system at Lessee’s other locations.  Keys will be furnished to each door lock.  At the termination of the lease, Lessee shall surrender all keys to the Premises whether paid for or not.

13.           KEY, SECURITY AND CONFIDENTIALITY, Lessor, his janitor, engineer or other agents may retain a pass key to said Premises to enable him to examine the Premises from time to time with reference to any emergency or to the general maintenance of said Premises.  Notwithstanding the foregoing, Lessor shall be entitled to have access to the Premises only when accompanied by a representative of Lessee, and upon no less than twenty-four (24) hours’ prior written notice specifying the purpose for the access and identifying by name and business any persons other than Lessor who will accompany Lessor; provided, however, that in the case of an emergency that gives rise to imminent danger to persons or property, Lessor shall give Lessee such notice as may be practicable under the circumstances.  Access by Lessor shall be strictly in accordance with the security and confidentiality requirements that Lessee may impose from time to time.  All information learned by or disclosed to Lessor with respect to Lessee’s business, and all information disclosed or discovered during an entry by Lessor into the Premises, shall be kept strictly confidential by Lessor, Lessor’s legal representatives, successor, assigns, servants and agents, and shall not be used (except for Lessor’s confidential internal purposes) or disclosed to others by Lessor Lessor’s legal representatives, successors, assigns, servants or agents without the express prior written consent of Lessee, which Lessee may grant, withhold or condition in its sole and absolute discretion.  In exercising its right of entry, Lessor shall not unreasonably interfere with the conduct of Lessee’s business operations on the Premises.

14.           TELEPHONE SERVICE, If Lessee desires telephonic or any other electric connection, Lessor will direct the electricians as to where and how the wires are to be introduced, and without such directions no boring or cutting for wires in installation thereof will be permitted.

15.           SERVICES, Lessor shall maintain Premises and the public and common areas of building, such as lobbies, stairs, corridor and restrooms, in reasonably good order and condition except for damage occasioned by the act of Lessee.

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Lessor shall furnish Premises with electricity for lighting and operation of low power usage office machines, heat, normal office air-conditioning, and elevator services, during the ordinary business hours of the building, which shall not be less than from 7 a.m. until 6 p.m., Mondays through Fridays, and 8 a.m. until 2 p.m. on Saturdays.  After-hours service shall be available to Lessee on mutually agreeable terms.  Air-conditioning units and electricity therefore for special air-conditioning requirements, such as for computer centers, shall be at Lessee’s expense.  Lessor shall also provide lighting replacement for Lessor furnished lighting, toilet room supplies, window washing with reasonable frequency, and customary janitor service according to the schedule attached as EXHIBIT C.  Lessor shall maintain the building and all public and common areas to the standard of a first-class office building.

Lessor shall not be liable to Lessee for any loss or damage caused by or resulting from any variation, interruption or any failure of said services due to any cause whatsoever other than Lessor’s gross negligence.  No temporary interruption or failure of such services incident to the making of repairs, alterations, or improvements, or due to accident or strike or conditions or events not under Lessor’s control shall be deemed as an eviction of Lessee or relieve Lessee from any of Lessee’s obligations hereunder except that if any interruption of utilities or services or any other cause renders the Premises untenantable for their intended purposes for more than three (3) consecutive business days, then Lessee’s obligation to pay rent shall abate from the end of that three-day period for the remaining time that the Premises are untenantable.

In the event of any lack of attention on the part of Lessor and any dissatisfaction with the service of the building, or any unreasonable annoyance of any kind, Lessee is requested to make complaints at Lessor’s building office and not to Lessor’s employees or agents seen within the building.  Lessee is further requested to remember that Lessor is as anxious as Lessee that a high grade service be maintained, and that the Premises be kept in a state to enable Lessee to transact business with the greatest possible ease and comfort.  The rules and regulations are not made to unnecessarily restrict Lessee, but to enable Lessor to operate the building to the best advantage of both parties hereto.  To this end Lessor shall have the right to waive from time to time such part or parts of these rules and regulations as in his judgment may not be necessary for the proper maintenance or operation of the building or consistent with good service, and may from time to time make such further reasonable rules and regulations as in his judgment may be needed for the safety, care and cleanliness of the Premises and the building and for the preservation of order therein.

16.           SOLICITORS, Lessor will make an effort to keep solicitors out of the building, and Lessee will not oppose Lessor in his attempt to accomplish this end.

17.           FLOOR PLAN, The floor plan and specifications for Lessee’s occupancy shall be attached hereto and marked Exhibit “A” which shall be approved by both Lessor and Lessee, both of whose approval shall not be unreasonably withheld.

18.           ASSIGNMENT, Lessee will not assign this lease, or any interest hereunder, without the prior written consent of Lessor, and this lease, or any interest

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hereunder, shall not be assigned by operation of law.  Lessee will not sublet said Premises or any part thereof and will not permit the use of said Premises by others other than Lessee and the agents of Lessee without first obtaining the written consent of Lessor, whose consent shall not be unreasonably withheld.  In the event such written consent shall be given, no other or subsequent assignment or subletting shall be made without the previous written consent of Lessor, whose consent shall not be unreasonably withheld.  Notwithstanding the foregoing, Lessee may assign this lease, in whole or in part, and may sublease all or any part of the Premises, to (a) a parent or subsidiary of Lessee, the entity with which or into which Lessee may merge, or an entity that is controlled by, controls or is under common control with, Lessee, (b) the purchaser of substantially all of the assets of Lessee.

During the term of any sublease Lessor shall not have the right to recapture the subleased space and Lessee shall be entitled to retain 100% of any rent in excess of the rent Lessee is paying under this lease.

In the event that Lessee desires to terminate its obligations under this lease with respect to all or any portion of the Premises (other than in the manner described in Article 41 below) and Lessor and Lessee agree upon a new tenant to take possession of that portion of the Premises, and if Lessor and Lessee agree to terminate this lease for that portion of the Premises, then any rent that is in excess of the rent payable by Lessee herein with respect to that portion of the Premises shall be shared equally between Lessor and Lessee.  Any costs incurred in securing such a substitute tenant shall be shared between Lessor and Lessee on a proportionate basis based on the length of the term of the lease with such new tenant.  As an example, if Lessee has twenty-four (24) months remaining on this lease and the lease with the new tenant is for sixty (60) months, the transaction costs, including commissions, tenant improvements, etc., shall be distributed 40% (2/5) to Lessee and 60% (3/5) to Lessor.

19.           OPERATING SERVICES AND REAL ESTATE TAXES, The annual base rental rate per rentable square foot in Paragraph 3 includes Lessee’s proportionate share of Operating Services and Real Estate Taxes for the Base Year (as that term is defined below) (“Base Year Costs”).  Only actual increases from these Base Year Costs, if any, will be passed on to Lessee on a proportionate basis.

DEFINITIONS

Base Year

The Base Year shall be the calendar year 2003.

Comparison Year

The Comparison Year(s) shall be the calendar year(s) subsequent to the Base Year.

Operating Services

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“Operating Services” include, but are not limited to, the charges incurred by Lessor for:  building operation salaries, benefits, management fee (not to exceed 5%) of gross income for the building, insurance, electricity, janitorial, supplies, telephone, HVAC, repair and maintenance, window washing, water and sewer, security, landscaping, disposal, elevator, and any other service or supplies reasonably necessary to the maintenance and operation of the premises.   Operating Services shall also include the amortization cost of capital investment items and of the installation thereof, which are primarily for the purpose of safety, saving energy or reducing operating costs, or which may be required by governmental authority, (all such costs shall be amortized over the reasonable life of the capital investment item, with the reasonable life and amortization schedule being determined in accordance with generally accepted accounting principles).  Notwithstanding anything to the contrary contained herein, Operating Services shall not include any of the following:

(i)            real estate taxes

(ii)           legal fees, auditing fees, brokerage commissions, advertising costs, or other related expenses incurred by Lessor in an effort to generate rental income;

(iii)          repairs, alterations, additions, improvements, or replacements made to rectify or correct any defect in the original design, materials or workmanship of the building or common areas (but not including repairs, alterations, additions, improvements or replacements made as a result of ordinary wear and tear);

(iv)          damage and repairs attributable to fire or other casualty;

(v)           damage and repairs necessitated by the negligence or willful misconduct of Lessor, Lessor’s employees, contractors or agents;

(vi)          executive salaries to the extent that such services are not in connection with the management, operation, repair or maintenance of the building;

(vii)         Lessor’s general overhead expenses not related to the building;

(viii)        legal fees, accountant’s fees and other expenses incurred in connection with disputes with tenants or other occupants of the building or associated with the enforcement of the terms of any leases with tenants or the defense of Lessor’s title to or interest in the building or any part thereof unless the outcome is to the financial benefit of all tenants;

(ix)           costs (including permit, license and inspection fees) incurred in renovating or otherwise improving, decorating, painting or altering (1) vacant space (excluding common areas) in the building or (2) space for tenants or other occupants in the building and costs incurred in supplying any item or service to less than all of the tenants in the building;

(x)            costs incurred due to a violation by Lessor or any other tenant of the building of the terms and conditions of a lease;

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(xi)           cost of any specific service provided to Lessee or other occupants of the building for which Lessor is reimbursed (but not including Operating Services and Real Estate Tax increases above Base Year Costs to the extent reimbursed to Lessor) or any other expense for which Lessor is or will be reimbursed by another source (i.e., expenses covered by insurance or warranties);

(xii)          costs and expenses which would be capitalized under generally accepted accounting principles, with the exception of the capital investment items specified hereinabove;

(xiii)         building management fees in excess of the management fees specified hereinabove;

(xiv)        cost incurred with owning and/or operating the parking lot(s) serving the building by independent parking operator(s).

(xv)         fees paid to Lessor or any affiliate of Lessor for goods or services in excess of the fees that would typically be charged by unrelated, independent persons or entities for similar goods and services;

(xvi)        rent called for under any ground lease or master lease;

(xvii)       principal and/or interest payments called for under any debt secured by a mortgage or deed of trust on the building; and

Operating Services shall be adjusted for the Base Year and all Comparison Year(s) to reflect the greater of actual occupancy or 95% occupancy.

Real Estate Taxes

Real Estate Taxes shall be the taxes paid by Lessor in the Base Year and each respective Comparison Year.  Real Estate Taxes shall be a separate category and shall be treated as such.

Proportionate Basis

Lessee’s share of Base Year and Comparison Year(s) Costs shall be a fraction, the numerator of which shall be the number of rentable square feet contained in the leased Premises (see Paragraph 1) and the denominator of which shall be the number of rentable square feet in the building in which the leased Premises are located (220,845/RSF).

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Computation of Adjustments to Base Year Costs

Any adjustment to Base Year Costs will commence to occur on January 1, 2004, with subsequent adjustments commencing every twelve months of the lease term thereafter.  Lessee shall be responsible for Lessee‘s proportionate share of any increase in a Comparison Year’s Costs over the Base Year Costs.  These costs shall be initially calculated based on estimated (projected) costs with reconciliation to actual costs when annual audited numbers are completed.  For the purpose of calculating projected increases to Base Year Costs, Lessor shall review historical data to predict if any estimated increases would be anticipated in a Comparison Year(s).  If they are, then commencing January 1, 2004, Lessor will assess a monthly charge to be paid together with monthly base rent.  Once actual cost data for Comparison Year(s) Real Estate Taxes and Operating Services for the entire building is formulated in accordance with generally accepted accounting principles and adjusted to the greater of actual occupancy or 95% occupancy, then Lessee’s estimated pass-through costs shall be corrected with Lessee or Lessor, as appropriate, reimbursing the other for the difference between the estimated and actual costs, at that time in a lump sum payment.

Lessor shall provide to Lessee a reconciliation of actual costs of Operating Services and Real Estate Taxes for each Comparison Year no later than May 15 of the following calendar year.  Within one hundred twenty (120) days after receipt of Lessor’s reconciliation statement, Lessee shall have the right during business hours, and upon three (3) business days’ prior written notice, to examine Lessor’s books and records with respect to Operating Services and Real Estate Taxes for the Comparison Year in question at Landlord’s offices at the address first set forth above.  If Lessee’s audit of the Operating Services and Real Estate Taxes reveals an overcharge of more than three percent (3%) in the aggregate, Lessor shall promptly reimburse Lessee for the ordinary and reasonable costs of the audit including, but not limited to, Lessee staff billed at the hourly payroll cost of those employees (including benefits) plus reasonable travel costs.  If Lessee’s audit does not reveal an overcharge of more than three percent (3%) in the aggregate, then Lessee shall bear all costs of its audit.  Any overcharge or underpayment of costs of Operating Services and Real Estate Taxes discovered as a result of Lessee’s audit shall be due from one party to the other within thirty (30) days after the amount of the overcharge or underpayment has been fixed.

Notwithstanding anything herein to the contrary, the costs of Operating Services and Real Estate Taxes for any Comparison Year shall be final and not subject to further review by either Lessor or Lessee on that date which is 180 days after receipt by Lessee of any statement of reconciliation of actual costs for the Comparison Year in question, or upon conclusion of any audit conducted by Lessee for that Comparison Year pursuant to the foregoing paragraph, whichever occurs later.

Upon termination of this lease, the amount of any corrected amount between estimated and actual costs with respect to the final Comparison Year shall survive the termination of the lease and shall be paid to Lessee or Lessor as appropriate within thirty (30) days after final reconciliation.

Computation of or adjustment to Operating Services and/or Real Estate Taxes pursuant to this paragraph or to rent pursuant to Paragraph 3 shall be computed based on a three hundred sixty-five (365) day year.

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For an example, see Exhibit B attached hereto.

20.           ADDITIONAL TAXES OR ASSESSMENTS,  Should there presently be in effect or should there be enacted during the term of this lease, any law, statute or ordinance levying any assessments or any tax upon the rent paid under this lease other than federal or state income, estate or gift taxes, Lessee shall reimburse Lessor for Lessee’s proportionate share of said expenses at the same time as rental payments.

21.           LATE PAYMENTS,  Any payment, required to be made pursuant to this lease, not made on the date the same is due shall bear interest at a rate equal to three percent (3%) above the prime rate of interest charged from time to time by Bank of America, or its successor; provided, however, that the first time in any calendar year that rent is paid late, interest shall not accrue until three days after receipt by Lessee of written notice from Lessor that rent is overdue.

In addition to any interest charged herein, a late charge of five percent (5%) of the payment amount shall be incurred for payments received more than five (5) days late; provided, however, that no late charge will be imposed unless Lessee fails to pay overdue amounts within five (5) days of receipt of notice from Lessor, except that Lessor shall not be required to give notice more than twice in any calendar year and once Lessor has given two notices in any calendar year, no further notices shall be required in that calendar year before imposition of the late charge.

22.           RISK,  All personal property of any kind or description whatsoever in the demised Premises shall be at Lessee’s sole risk.  Lessor shall not be liable for any damage done to or loss of such personal property or damage or loss suffered by the business or occupation of the Lessee arising from any acts or neglect of co-tenants or other occupants of the building, or of Lessor or the employees of Lessor, or of any other persons, or from bursting, overflowing or leaking of water, sewer or steam pipes, or from the heating or plumbing or sprinklering fixtures, or from electric wires, or from gas, or odors, or caused in any other manner whatsoever except in the case of negligence on the part of Lessor, its employees, contractors or agents.  Lessee shall keep in force throughout the term of this lease such casualty, general liability and business interruption insurance as a prudent tenant occupying and using the Premises would keep in force.

23.           INDEMNIFICATION,  Lessee will defend, indemnify and hold harmless Lessor from any claim, liability or suit including reasonable attorney’s fees on behalf of any person, persons, corporations and/or firm for any injuries or damages occurring in or about the said Premises or on or about the sidewalk, stairs, or thoroughfares adjacent thereto to the extent said damages or injury was caused by the ordinary or gross negligence or intentional act of Lessee and/or of Lessee’s agents, employees, or contractors.

24.           WAIVER OF SUBROGATION,  Lessee and Lessor do hereby release and relieve the other, and waive their entire claim of recovery for loss, damage, injury, and all liability of every kind and nature, whether by subrogation or otherwise, which may arise out of, or be incident to, fire and extended coverage perils, in, on, or about the Premises herein described, whether due to negligence of either of said parties, their agents, or employees, or otherwise.

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25.           SUBORDINATION,  This lease and all interest and estate of Lessee hereunder is subject to and is hereby subordinated to all present and future mortgages and deeds of trust affecting the Premises or the property of which said Premises are a part; provided, however, that the foregoing subordination agreement is expressly subject to the condition that as long as Lessee performs its obligations under this lease, no foreclosure of, deed given in lieu of foreclosure of, or sale under any mortgage or deed of trust, and no steps or procedures taken under any mortgage or deed of trust, shall disturb Lessee’s peaceful possession of the Premises or otherwise affect Lessee’s rights under this Lease.

Lessee agrees to execute at no expense to the Lessor, a commercially reasonable subordination, nondisturbance and attornment agreement in order to further effect the subordination of this lease to any such mortgage or deed of trust on the terms described above.  In the event of a sale or assignment of Lessor’s interest in the Premises, or in the event of any proceedings brought for the foreclosure of, or in the event of exercise of the power of sale under any mortgage or deed of trust made by Lessor covering the Premises, Lessee shall attorn to the purchaser and recognize such purchaser as Lessor; provided, however, that unless the purchaser assumes and agrees to perform Lessor’s obligations under this lease Lessee does not release Lessor from any liability under this Lease.  Lessor and Lessee each agree to execute, at no expense to the other, any estoppel certificate in commercially reasonable form describing accurately the status of this lease.

26.           CASUALTY,  In the event the leased Premises, or any portion of the building that is reasonably necessary for the use and occupancy of the Premises, are destroyed or injured by fire, earthquake or other casualty to the extent that they are untenantable in whole or in part, and if the Premises or building can reasonably be repaired and restored within 270 days of the date of the casualty, then Lessor shall proceed with reasonable diligence to rebuild and restore the said Premises or such part thereof as may be injured as aforesaid, provided that during the period of such rebuilding and restoration the rent shall be abated on the portion of the Premises that cannot be occupied for its intended use.  During any period of abatement of rent due to casualty or destruction of the Premises, Lessor shall use its best efforts to locate comparable space for Lessee at the fair market rate not to exceed Lessee’s rental rate hereunder.  Lessor shall not be liable for any consequential damages by reason of inability, after use of its best efforts, to locate alternative space comparable to the premises leased hereunder.

If fire or other casualty renders the whole or any material part of the Premises untenantable, or if the building is damaged so that access and necessary services cannot be provided to the Premises, and if the Premises or building cannot reasonably be repaired and restored within 270 days of the date of the casualty based upon a commercially reasonable standard, then this lease shall terminate effective upon the date of the casualty.

27.           INSOLVENCY, If Lessee becomes insolvent, or makes an assignment for the benefit of creditors, or a receiver is appointed for the business or property of Lessee, or a petition is filed in a court of competent jurisdiction to have Lessee adjudged

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bankrupt, then Lessor may at Lessor’s option terminate this lease.  Said termination shall reserve unto Lessor all of the rights and remedies available under Paragraph 28 (“Default”) hereof, and Lessor may accept rents from such assignee or receiver without waiving or forfeiting said right of termination.  As an alternative to exercising his right to terminate this lease, Lessor may require Lessee to provide adequate assurances, including the posting of a cash bond, of Lessee’s ability to perform its obligations under this lease.

28.           DEFAULT, It shall be a default by Lessee under this lease if Lessee fails to make any payment of rent as and when due and such failure continues for more than five days after Lessor notifies Lessee in writing, or if Lessee fails to perform any of Lessee’s nonmonetary obligations under this lease and the failure continues for a period of 30 days after Lessor notifies Lessee in writing specifying the nature of the default (except if the failure cannot reasonably be cured within 30 days, then if Lessee fails to commence to cure the failure within that 30-day period and thereafter diligently prosecute the cure to completion), or if Lessee vacates or abandons the Premises and fails to pay rent..  In any of such events Lessor may with or without notice or demand, at Lessor’s option, and without being deemed guilty of trespass and/or without prejudicing any remedy or remedies which might otherwise be used by Lessor for arrearages or preceding breach of covenant or condition of this lease, enter into and repossess said Premises and expel the Lessee and all those claiming under Lessee in accordance with applicable law.  In such event Lessor may eject and remove from said Premises all goods and effects (forcibly if necessary).  This lease if not otherwise terminated may immediately be declared by Lessor as terminated.  The termination of this lease pursuant to this Article shall not relieve Lessee of its obligations to make the payments required herein.  In the event this lease is terminated pursuant to this Article, or if Lessor enters the Premises without terminating this lease and Lessor relets all or a portion of the Premises, Lessee shall be liable to Lessor for all the costs of reletting, including necessary renovation and alteration of the leased Premises.  Lessee shall remain liable for all unpaid rental which has been earned plus late payment charges pursuant to Paragraph 21 and for the remainder of the term of this lease for any deficiency between the net amounts received following reletting and the gross amounts due from Lessee, or if Lessor elects, Lessee shall be immediately liable for all rent and additional rent (Paragraph 19) that would be owing to the end of the term, less any rental loss Lessee proves could be reasonably avoided, which amount shall be discounted by the discount rate of the Federal Reserve Bank, situated nearest to the Premises, plus one percent (1%).  Waiver by the Lessor of any default, monetary or non-monetary, under this lease shall not be deemed a waiver of any future default under the Lease.  Acceptance of rent by Lessor after a default shall not be deemed a waiver of any defaults (except the default pertaining to the particular payment accepted) and shall not act as a waiver of the right of Lessor to terminate this lease as a result of such defaults by an unlawful detainer action or otherwise.

29.           BINDING EFFECT, The parties hereto further agree with each other that each of the provisions of this lease shall extend to and shall, as the case may require, bind and inure to the benefit, not only of Lessor and Lessee, but also of their respective heirs, legal representatives, successors and assigns, subject, however, to the provisions of Paragraph 18 of this lease.

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It is also understood and agreed that the terms “Lessor” and “Lessee” and verbs and pronouns in the singular number are uniformly used throughout this lease regardless of gender, number or fact of incorporation of the parties hereto.  The typewritten riders or supplemental provisions, if any, attached or added hereto are made a part of this lease by reference.  It is further mutually agreed that no waiver by Lessor of a breach by Lessee of any covenant or condition of this lease shall be construed to be a waiver of any subsequent breach of the same or any other covenant or condition.

30.           HOLDING OVER, If Lessee holds possession of the Premises after term of this lease, Lessee shall be deemed to be a month-to-month tenant upon the same terms and conditions as contained herein, except rent which shall be revised to reflect the then current market rate.  During month-to-month tenancy, Lessee acknowledges Lessor will be attempting to relet the Premises.  Lessee agrees to cooperate with Lessor and Lessee further acknowledges Lessor’s statutory right to terminate the lease with proper notice.

31.           ATTORNEY’S FEES, If any legal action is commenced to enforce any provision of this lease, the prevailing party shall be entitled to an award of reasonable attorney’s fees and disbursements.

32.           NO REPRESENTATIONS, The Lessor has made no representations or promises except as contained herein or in some future writings signed by Lessor.

33.           QUIET ENJOYMENT, So long as Lessee pays the rent and performs the covenants contained in this lease, Lessee shall hold and enjoy the Premises peaceably and quietly, subject to the provisions of this lease.

34.           RECORDATION, Lessee shall not record this lease without the prior written consent of Lessor.  However, at the request of Lessor, both parties shall execute a memorandum or “short form” of this lease for the purpose of recordation in a form customarily used for such purpose.  Said memorandum or short form of this lease shall describe the parties, the Premises and the lease term, and shall incorporate this lease by reference.

35.           MUTUAL PREPARATION OF LEASE, It is acknowledged and agreed that this lease was prepared mutually by both parties.  In the event of ambiguity, it is agreed by both parties that it shall not be construed against either party as the drafter of this lease.

36.           GOVERNING LAW, This lease shall be governed by, construed and enforced in accordance with the laws of the State of Washington.

37.           DESIGN SERVICES, Lessor shall be responsible for up to $1.50 per rentable square foot for space planning, design, documentation and construction documents in connection with all work to be done in the Premises in order to prepare the Premises for Lessee’s effective occupancy.

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38.           FINISH WORK, Lessor shall construct, on a turn-key basis and at Lessor’s sole cost and expense, all improvements to the Premises that are shown on the space plan dated February 11, 2002, and scope of work prepared by Collinswoermen and dated February 14, 2002 and attached to this lease as EXHIBIT A.  The improvements will include but not be limited to the following:  all partitioning, completely carpeted and air conditioned, ceiling in place, lighting in place, all doors and jambs, all locks and hardware, kitchen sink, counter and cabinets, all electrical wiring and outlets, all phone outlets, Levolor blinds on all outside glass, and completely painted throughout.  Once working drawings are completed and approved by both parties, they shall supersede EXHIBIT A.

Notwithstanding the above, Lessor shall not be responsible for the payment, including installation costs, of any of Lessee’s built-in furniture, fixtures, signage or other “custom-made” improvements.  Lessor shall not be responsible for the installation of telephone and computer equipment nor the wiring of the same.

The Tenant Improvements shall be deemed to be complete when all construction and installation is substantially completed (as that term is used in the industry) but for minor and immaterial items of construction or decoration that do not interfere in any material respect with Lessee’s use or occupancy of the Premises.  Promptly after Lessor’s notice to Lessee that the Tenant Improvements are substantially complete, Lessor and Lessee shall inspect the Premises and prepare a list of punchlist items.  Lessor shall promptly and diligently complete all punchlist items, but the existence of punchlist items will not delay commencement of the lease term.

Lessor will allow Lessee to have timely access to the Premises during the construction period for the sole purpose of installing Lessee’s furniture, cabling, fixtures and equipment; provided however that Lessee shall coordinate with Lessor’s contractor concerning the timing of access, and provided further that without consent of Lessor’s contractor, furniture shall not be moved in earlier than May 20, 2002.

39.           PARKING, Lessee shall be provided parking for seven (7) cars inside the building garage and twenty (20) cars outside the building, all at market rate and paid for by Lessee.  The current rates of parking stalls are $120 per stall for building garage and $110 per stall for surface parking stalls.  Lessee shall also be provided parking for three (3) additional cars inside the building garage on a month-to-month basis until needed by Lessor.  Lessor shall provide Lessee no less than thirty (30) days’ notice of any termination of Lessee’s right to any of the three additional garage parking stalls.

40.           REAL ESTATE COMMISSION, Lessor agrees to pay a real estate commission equivalent to $5.00 per rentable square foot leased to Washington Partners, Inc. for services in this lease transaction, payable one-half (1/2) upon full execution of this lease and one-half (1/2) upon lease commencement.  Lessee shall offset from the consideration due Lessor under Section 4 of this lease the first one-half (1/2) commission due to Washington Partners, Inc. and pay such amount directly to Washington Partners, Inc.  Payment to Washington Partners, Inc. shall constitute payment to Lessor.  Should the balance of the commission not be paid by Lessor when due, then the remaining amount shall be paid directly by Lessee to Washington Partners, Inc. from the initial rents due to Lessor and the amount so paid given to Lessee as a rent credit.

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41.           EARLY TERMINATION, Lessee shall have the option to cancel and terminate this lease effective at any time after the expiration of the 24th month of the lease term and before the expiration of the 48^th month of the lease term by giving Lessor nine (9) months prior written notice, and paying to Lessor the unamortized portion (based on an 84-month amoritzation period) of the architectural fees and tenant improvement costs paid by Lessor for design and construction of the Tenant Improvements, and of the real estate commission paid pursuant to Article 40 above.  Promptly after completion of the Tenant Improvements, Lessor shall provide to Lessee a written statement in reasonable detail showing all costs of the design and construction of the Tenant Improvements and of the real estate commission, together with copies of supporting documents.

42.           RIGHT OF FIRST REFUSAL, Subject only to prior rights granted Holland America/Westours, Lessee shall have a first right of refusal to lease any adjacent space on the 5th floor of the Elliott Bay Office Park Building that becomes available for lease.  If Lessor has an interested party for that space, Lessor will notify Lessee in writing and Lessee shall have ten (10) working days from receipt of said notice to respond either way.  Lessee shall take the entire area intended for lease to a third party and shall not be entitled to lease just a portion thereof.  Rent for this space shall be at market rate.

43.           OPTION TO RENEW, Provided that at the time the option is exercised there is no default by Lessee that remains uncured after such notice and opportunity to cure as may be provided by the terms of this lease, Lessee shall have the option to renew this lease for an additional period of five (5) years on the same terms and conditions except the rent.  Base rent for the renewal term shall be at market rate for renewal of a lease of comparable office space in Seattle (exclusive, however, of any improvements paid for by Lessee.  The term “market rate” mean the prevailing market rental rate on a level basis for renewal of a lease for a tenant occupying an amount of space comparable to the amount then leased by Lessee, taking into consideration any concessions (e.g., rent abatement, refurbishment, carpeting and other allowances) then being offered by landlords to renewing tenants for comparable space, and excluding the value of improvements made and paid for by Lessee.  Lessee agrees to give Lessor notice of its intent to renew nine (9) months prior to the expiration of the initial lease term.

Any dispute concerning base rent for the renewal term shall be resolved by arbitration in the following manner.  If the parties are not able to agree on the market rate within 90 days after Lessee gives Lessor its notice of intent to renew (“Notice Date”), then each party shall appoint a disinterested, independent appraiser who is a member of the American Institute of Real Estate Appraisers (an “Appraiser”) and has at least ten years experience appraising rental properties in the Seattle area.  If the Appraisers are unable to reach agreement about market rent within one hundred twenty (120) days after the Notice Date, then the two Appraisers shall together appoint a third Appraiser having the same qualifications and the third Appraiser shall be the arbitrator.  Once the arbitrator is appointed, each Appraiser promptly shall submit to the arbitrator within seven days a written statement of his or her determination of market rate, supported by the reasons for that determination, with counterpart copies given to each party.  The role of the arbitrator will be to select which of the two proposed determinations of market rate mostly closely

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approximates his or her own determination on the matter.  The arbitrator will have no right to propose a middle ground or any modification of either of the two determinations.  The arbitrator will determine the matter within 10 days after his or her receipt of the written statement of each of the two Appraisers.  The determination of the arbitrator will be final and binding on all parties, and the market rate so determined shall be the base rent for the renewal term.

Each party shall bear the expense of retaining its Appraiser.  The fees and expenses of the arbitrator and other expenses of the arbitration shall be borne equally by the parties.  The arbitrator’s determination of market rate shall be final and binding on the parties.  Judgment upon the determination of market rate rendered by the arbitrator may be entered in any court having jurisdiction.

44.           EXHIBITS.  The following exhibits are attached to this lease and are by this reference made a part of it as though fully set forth above:

EXHIBIT A	Tenant Improvement Plans
EXHIBIT B	Example of Computation of Operative Services Rent
EXHIBIT C	Schedule of Janitorial Service

IN WITNESS WHEREOF, the parties hereof have executed this lease the day and year first above written.

SELIG REAL ESTATE HOLDINGS SIX,  a Washington general partnership			NEORX CORPORATION, INC.
By:	Martin Selig	By:
Its:	General Partner	Its:
“Lessor”			“Lessee”

[Ellen, these acknowledgements are new, were not part of this draft. —ch]

STATE OF WASHINGTON	)
	) ss.
COUNTY OF KING	)

On this ______ day of _________________, 2002, before me, the undersigned, a Notary Public in and for the State of Washington, duly commissioned and sworn, personally appeared _____________________________, to me known to be the person who signed as ________________________ of SELIG REAL ESTATE HOLDINGS SIX, the partnership that executed the within and foregoing instrument, and acknowledged said instrument to be the free and voluntary act and deed of said partnership for the uses and purposes therein mentioned, and on oath stated that ______ was authorized to execute said instrument on behalf of the partnership.

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IN WITNESS WHEREOF I have hereunto set my hand and official seal the day and year first above written.

(Signature of Notary)

(Print or stamp name of Notary)

NOTARY PUBLIC in and for the State of Washington, resident at

My appointment expires:

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STATE OF WASHINGTON	)
	) ss.
COUNTY OF KING	)

On this ______ day of _________________, 2002, before me, the undersigned, a Notary Public in and for the State of Washington, duly commissioned and sworn, personally appeared _____________________________, to me known to be the person who signed as ________________________ of NEORX CORPORATION, INC., the corporation that executed the within and foregoing instrument, and acknowledged said instrument to be the free and voluntary act and deed of said corporation for the uses and purposes therein mentioned, and on oath stated that ______ was duly elected, qualified and acting as said officer of the corporation, that _____ was authorized to execute said instrument and that the seal affixed, if any, is the corporate seal of said corporation.

IN WITNESS WHEREOF I have hereunto set my hand and official seal the day and year first above written.

(Signature of Notary)

(Print or stamp name of Notary)

NOTARY PUBLIC in and for the State of Washington, resident at

My appointment expires:

NEORX1030.01

Attachment

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EXHIBIT B

EXAMPLE

The intent is to include Lessee’s proportionate share of all Base Year Costs in Lessee’s Annual Base Rental Rate.  It is further the intent to limit adjustments to Lessee’s Base Year Costs to actual increases in cost.  The Operating Services are adjusted to the greater of actual occupancy or 95% occupancy for the base year to fairly establish the Base Year Costs at an equitable standard for comparison purposes.  Comparison Years are similarly adjusted for purposes of fairness and equality.  To prevent any confusion regarding computation of Base Year Costs, Comparison Year Costs and the adjustment of those costs to 95% occupancy, if necessary, we have set forth the following example.  It is important to note that if adjustment to 95% occupancy is necessary, not all Operating Services are adjusted.

Expenses requiring adjustment are those which are 100% dependent upon the change in footage and adjust with the change in occupied footage.  This category includes electricity, water/sewer, superintendent, disposal, management, janitorial supplies, window washing, repair and maintenance, HVAC maintenance, and janitorial labor.

Other expenses do not require adjustment nor are they dependent upon occupied footage change.  These categories are the same whether the building is empty or full.  They are, insurance, security, elevator, landscaping and telephone.

Real Estate Taxes are dependent upon independent assessment.  Real Estate Taxes are not adjusted to 95%, but are established for each respective year based on the actual tax paid whether for the respective Base Year or each subsequent Comparison Year(s).

Please note the expenses noted below which are and are not adjusted and the adjustment to each expense to achieve 95% occupancy, if necessary.  The method of adjusting expenses depicted in the example will be followed when adjusting actual Operating Service Expenses for both the Base Year and Comparison Year(s).

HYPOTHETICAL FACTS

Building Occupancy:	80		%
Actual Base Year Costs:	$	375,000
Grossed Base Year Costs to 95%:	$	440,000
Actual Comparison Year Costs: (see below)	$	405,440
Grossed Comparison Year Costs to 95%: (see below)	$	463,080
Tenant Premises:	10,000 RSF
Building RSF:	125,000 RSF
Tenant Proportionate Basis:	10,000 ¸ 125,000 = 8		%

EXAMPLE

Description	Actual Expenses			Grossed Expenses
Percent Occupied	80.00		%	95.00		%	Methodology
Real Estate Taxes	$	54,854		$	54,854		Actual Cost
Operating Expenses
Insurance	$	26,595		$	26,595		Actual Cost
Electricity	$	69,358		$	82,363		Adjusts with occupancy
Water & Sewer	$	4,945		$	5,872		Adjusts with occupancy
Security	$	5,000		$	5,000		Actual Cost
Elevator	$	7,526		$	7,526		Actual Cost
Superintendent	$	82,869		$	98,407		Adjusts with occupancy
Landscaping	$	2,912		$	2,912		Actual Cost
Disposal	$	15,502		$	18,409		Adjusts with occupancy
Management	$	41,680		$	49,495		Adjusts with occupancy
Supplies	$	4,339		$	5,153		Adjusts with occupancy
Window Washing	$	1,527		$	1,813		Adjusts with occupancy
Repairs & Maintenance	$	24,333		$	28,895		Adjusts with occupancy
Telephone	$	1,144		$	1,144		Actual Cost
HVAC Maintenance	$	6,208		$	7,372		Adjusts with occupancy
Janitorial	$	56,648		$	67,270		Adjusts with occupancy
TOTALS:	$	405,440		$	463,080

EX-10.26

EXHIBIT 10.26

The Company has entered into the attached form of Key Executive Severance Agreement with the following executive officers as of the following dates:

Name	Date
Linda T. Findlay	10/30/2001
Neile A. Grayson	10/30/2001
Richard G. Ghalie	10/30/2001
Melinda G. Kile	10/30/2001
Leslie J. Sabo	10/30/2001

All of the agreements, except that of Ms. Grayson, provide for severance pay equal to 50% of the executive’s then current annual base salary.  Ms. Grayson’ s agreement provides for severance payments equal to 75% of her current annual base salary and nine months of other benefits if employment is terminated during the Initial Term of her agreement.

NEORX CORPORATION
KEY EXECUTIVE SEVERANCE AGREEMENT (VP)

This Key Executive Severance Agreement (VP) (this “Agreement”), dated as of              , 20       , is entered into by and between NEORX CORPORATION, a Washington corporation (as supplemented by Section 10, the “Company”), and                (the “Executive”).

The Board of Directors of the Company (the “Board”) has determined that it is in the best interests of the Company and its shareholders to ensure that the Company will have the continued dedication of the Executive, notwithstanding the fact that the Executive does not have any form of traditional employment contract or other assurance of job security.  The Board believes it is imperative to diminish any distraction of the Executive arising from the personal uncertainty and insecurity that

arises in the absence of any assurance of job security by providing the Executive with reasonable compensation and benefit arrangements in the event of termination of the Executive’s employment by the Company under certain defined circumstances.

In order to accomplish these objectives, the Board has caused the Company to enter into this Agreement.

1.             Term

The initial term of this Agreement (the “Initial Term”) shall be for a period of one (1) year from the date of this Agreement as first appearing; provided, however, that this Agreement shall automatically renew for successive additional one (1) year periods (“Renewal Terms”), unless notice of nonrenewal is given by either party to the other party at least ninety (90) days prior to the end of the Initial Term or any Renewal Term.  The “Term” of this Agreement shall be the Initial Term plus all Renewal Terms.  At the end of the Term, this Agreement shall terminate without further action by either the Company or the Executive.

2.             Employment

The Executive and the Company acknowledge that, except as may otherwise be provided under any other written agreement between the Executive and the Company, the employment of the Executive by the Company or by any affiliated or successor company is “at will” and may be terminated by either the Executive or the Company or its affiliated companies at any time with or without cause, subject to the termination payments prescribed herein.

3.             Attention and Effort

During any period of time that the Executive remains in the employ of the Company, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive will devote all his productive time, ability, attention and effort to the business and affairs of the Company and the discharge of the responsibilities assigned to him hereunder, and will seek to perform faithfully and efficiently such responsibilities.  It shall not be a violation of this Agreement for the Executive to (a) serve on corporate, civic or charitable boards or committees, (b) deliver lectures, fulfill speaking engagements or teach at educational institutions, (c) manage personal investments, or (d) engage in activities permitted by the policies of the Company or as specifically permitted by the Company, so long as such activities do not significantly interfere with the performance of the Executive’s responsibilities in accordance with this Agreement.  It is expressly understood and agreed that to the extent any such activities have been conducted by the Executive

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prior to the Term, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) during the Term shall not thereafter be deemed to interfere with the performance of the Executive’s responsibilities to the Company.

4.             Termination

During the Term, employment of the Executive may be terminated as follows, but, in any case, the nondisclosure provisions set forth in Section 7 hereof shall survive the termination of this Agreement and the termination of the Executive’s employment with the Company:

4.1          By the Company or the Executive

At any time during the Term, the Company may terminate the employment of the Executive with or without Cause (as defined below), and the Executive may terminate his employment for Good Reason (as defined below) or for any reason, upon giving Notice of Termination (as defined below).

4.2          Automatic Termination

This Agreement and the Executive’s employment shall terminate automatically upon the death or Total Disability of the Executive.  The term “Total Disability” as used herein shall mean the Executive’s inability (with such accommodation as may be required by law and which places no undue burden on the Company), as determined by a physician selected by the Company and acceptable to the Executive, to perform the Executive’s essential duties for a period or periods aggregating twelve (12) weeks in any three hundred sixty-five (365) day period as a result of physical or mental illness, loss of legal capacity or any other cause beyond the Executive’s control, unless the Executive is granted a leave of absence by the Board.

4.3          Notice of Termination

Any termination by the Company or by the Executive during the Term shall be communicated by Notice of Termination to the other party given in accordance with Section 9 hereof.  The term “Notice of Termination” shall mean a written notice that (a) indicates the specific termination provision in this Agreement relied upon and (b) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated.  The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance that contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company hereunder

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or preclude the Executive or the Company from asserting such fact or circumstance in enforcing the Executive’s or the Company’s rights hereunder.

4.4          Date of Termination

“Date of Termination” means (a) if the Executive’s employment is terminated by reason of death, the last day of the calendar month in which the Executive’s death occurs, (b) if the Executive’s employment is terminated by reason of Total Disability, immediately upon a determination by the Company of the Executive’s Total Disability, and (c) in all other cases, ten (10) days after the date of personal delivery or mailing of the Notice of Termination.  The Executive’s employment and performance of services will continue during such ten (10) day period; provided, however, that the Company may, upon notice to the Executive and without reducing the Executive’s compensation during such period, excuse the Executive from any or all of his duties during such period.

5.             Termination Payments

In the event of termination of the Executive’s employment during the Term, all compensation and benefits shall terminate, except as specifically provided in this Section 5.

5.1          Termination by the Company Other Than for Cause or by the Executive for Good Reason

If during the Term the Company terminates the Executive’s employment other than for Cause or the Executive terminates his employment for Good Reason, the Executive shall be entitled to:

(a)           receive payment of the following accrued obligations (the “Accrued Obligations”):

(i)            the Executive’s then current annual base salary through the Date of Termination to the extent not theretofore paid; and

(ii)           any compensation previously deferred by the Executive (together with accrued interest or earnings thereon, if any) and any accrued vacation pay that would be payable under the Company’s standard policy, in each case to the extent not theretofore paid;

(b)           for six months after the Date of Termination or until the Executive qualifies for comparable medical and dental insurance benefits from another

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employer, whichever occurs first, the Company shall pay the Executive’s premiums for health insurance benefit continuation for the Executive and his family members, if applicable, that the Company provides to the Executive under the provisions of the federal Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”), to the extent that the Company would have paid such premiums had the Executive remained employed by the Company (such continued payment is hereinafter referred to as “COBRA Continuation”); and

(c)           an amount as severance pay equal to fifty percent (50%) of the Executive’s then current annual base salary for the fiscal year in which the Date of Termination occurs, subject to payment and potential reduction as set forth in Section 5.5 hereof.

5.2          Termination for Cause or Other Than for Good Reason

If during the Term the Executive’s employment shall be terminated by the Company for Cause or by the Executive for other than Good Reason, this Agreement shall terminate without further obligation on the part of the Company to the Executive, other than the Company’s obligation to pay the Executive the Accrued Obligations to the extent theretofore unpaid.

5.3          Expiration of Term

In the event the Executive’s employment is not terminated prior to expiration of the Term, this Agreement shall terminate without further obligation on the part of the Company to the Executive.

5.4          Termination Because of Death or Total Disability

If the Executive’s employment is terminated during the Term by reason of the Executive’s death or Total Disability, this Agreement shall terminate automatically without further obligation on the part of the Company to the Executive or his legal representatives under this Agreement, other than the Company’s obligation to pay the Executive the Accrued Obligations (which shall be paid to the Executive’s estate or beneficiary, as applicable in the case of the Executive’s death) and to provide COBRA Continuation.

5.5          Payment Schedule and Offset for Other Earnings

All payments of Accrued Obligations, or any portion thereof payable pursuant to this Section 5, shall be made to the Executive within ten (10) working days of the Date of Termination.  Any severance payments payable to the Executive pursuant to

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Section 5.1(c) shall be made to the Executive in the form of salary continuation, payable at normal payroll intervals during the six month severance period, and subject to offset for other earnings received by the Executive as follows:

(a)           The Executive shall have no affirmative duty to seek other employment or otherwise mitigate lost earnings during the six month severance period.

(b)           The Executive shall disclose to the Company any earnings received (or that the Executive had the right to receive) from employment, consulting or performance of other personal services during the six month severance period, and the source(s) of such earnings.

(c)           The Company, in each payroll period that a severance payment is due, shall have the right to offset on a dollar-for-dollar basis all such earnings that the Executive received or had the right to receive during that payroll period.

(d)           In the event the Company disputes whether Good Reason existed for the Executive to terminate his employment for Good Reason, the Company shall pay salary continuation as provided above in this Section 5.5 until the earliest of (i) settlement by the parties, (ii) determination by arbitration in accordance with Section 14 hereof that Good Reason did not exist, and (iii) completion of the payments required by this Section 5.5 and Section 5.1(c) hereof.  If, pursuant to Section 14 hereof, an arbitrator determines that Good Reason did not exist, the arbitrator shall also decide whether the Executive had a reasonable, good-faith basis for claiming that there was Good Reason to terminate.  If the arbitrator determines that there was not such a basis, the Executive shall be obligated to repay promptly to the Company the salary continuation payments; if the arbitrator determines that there was such a basis, the Executive shall not be obligated to repay the salary continuation.

5.6          Cause

For purposes of this Agreement, “Cause” means cause given by the Executive to the Company and shall include, without limitation, the occurrence of one or more of the following events:

(a)           a clear refusal to carry out any material lawful duties of the Executive or any directions of the Board or senior management of the Company reasonably consistent with those duties;

(b)           persistent failure to carry out any lawful duties of the Executive or any directions of the Board or senior management reasonably consistent with those duties;

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provided, however, that the Executive has been given reasonable notice and opportunity to correct any such failure;

(c)           violation by the Executive of a state or federal criminal law involving the commission of a crime against the Company or any other criminal act involving moral turpitude;

(d)           current abuse by the Executive of alcohol or controlled substances; deception, fraud, misrepresentation or dishonesty by the Executive; or any incident materially compromising the Executive’s reputation or ability to represent the Company with investors, customers or the public; or

(e)           any other material violation of any provision of this Agreement by the Executive, subject to the notice and opportunity to cure requirements of Section 8 hereof.

5.7          Good Reason

For purposes of this Agreement, “Good Reason” means:

(a)           reduction of the Executive’s annual base salary to a level below the level in effect on the date of this Agreement, regardless of any change in the Executive’s duties or responsibilities;

(b)           the assignment to the Executive of any duties materially inconsistent with the Executive’s position, authority, duties or responsibilities or any other action by the Company the results in a material diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated and inadvertent action not taken in bad faith and that is remedied by the Company promptly after receipt of notice thereof given by the Executive;

(c)           the Company’s requiring the Executive to be based at any office or location more than twenty (20) miles from the Company’s current location in Seattle, Washington;

(d)           any failure by the Company to comply with and satisfy Section 10 hereof, provided, however, that the Company’s successor has received at least ten (10) days’ prior written notice from the Company or the Executive of the requirements of Section 10 hereof; or

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(e)           any other material violation of any provision of this Agreement by the Company, subject to the notice and opportunity to cure requirements of Section 8 hereof.

5.8          General Release of Claims

As a condition to the payment contemplated by Section 5.1(c), the Executive shall execute a general release of claims against the Company in a form satisfactory to the Company in its sole discretion.  By way of example and not limitation, the general release of claims will include any claims for wages, bonuses, employment benefits, or damages of any kind whatsoever, arising out of any contracts, express or implied, any covenant of good faith and fair dealing, express or implied, any theory of wrongful discharge, any legal restriction on the Company’s right to terminate employment, or any federal, state or other governmental statute or ordinance, including, without limitation, Title VII of the Civil Rights Act of 1964, the federal Age Discrimination in Employment Act, the Americans with Disabilities Act, the Family and Medical Leave Act, the Washington Law Against Discrimination, or any other legal limitation on the employment relationship.

6.             Representations, Warranties and Other Conditions

In order to induce the Company to enter into this Agreement, the Executive represents and warrants to the Company as follows:

6.1          Health

The Executive is in good health and knows of no physical or mental disability that, with any accommodation that may be required by law and that places no undue burden on the Company, would prevent him from fulfilling his obligations hereunder.  The Executive agrees, if the Company requests, to submit to reasonable periodic medical examinations by a physician or physicians designated, paid for and arranged by the Company.  The Executive agrees that the examination’s medical report shall be provided to the Company.

6.2          No Violation of Other Agreements

The Executive represents that neither the execution nor the performance of this Agreement by the Executive will violate or conflict in any way with any other agreement by which the Executive may be bound.

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7.             Nondisclosure; Return of Materials

7.1          Nondisclosure

Except as required by his employment with the Company, the Executive will not, at any time during the term of employment by the Company, or at any time thereafter, directly, indirectly or otherwise, use, communicate, disclose, disseminate, lecture upon or publish articles relating to any confidential, proprietary or trade secret information without the prior written consent of the Company.  The Executive understands that the Company will be relying on this covenant in continuing the Executive’s employment, paying him compensation, granting him any promotions or raises, or entrusting him with any information that helps the Company compete with others.

7.2          Return of Materials

All documents, records, notebooks, notes, memoranda, drawings or other documents made or compiled by the Executive at any time while employed by the Company, or in his possession, including any and all copies thereof, shall be the property of the Company and shall be held by the Executive in trust and solely for the benefit of the Company, and shall be delivered to the Company by the Executive upon termination of employment or at any other time upon request by the Company.

8.             Notice and Cure of Breach

Whenever a breach of this Agreement by either party is relied upon as justification for any action taken by the other party pursuant to any provision of this Agreement, other than clause (a), (b), (c) or (d) of Section 5.6 hereof, before such action is taken, the party asserting the breach of this Agreement shall give the other party at least twenty (20) days’ prior written notice of the existence and the nature of such breach before taking further action hereunder and shall give the party purportedly in breach of this Agreement the opportunity to correct such breach during the twenty (20) day period.

9.             Form of Notice

Every notice required by the terms of this Agreement shall be given in writing by serving the same upon the party to whom it was addressed personally or by registered or certified mail, return receipt requested, at the address set forth below or at such other address s may hereafter be designated by notice given in compliance with the terms hereof:

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If to the Executive:
If to the Company	NeoRx Corporation
	410 West Harrison
	Seattle, Washington 98119
	Attn:  President
With a copy to:	Perkins Coie LLP
	1201 Third Avenue, 40th Floor
	Seattle, Washington 98101-3099
	Attn:  James R. Lisbakken

Except as set forth in Section 4.4 hereof, if notice is mailed, such notice shall be effective upon mailing.

10.          Assignment

This Agreement is personal to the Executive and shall not be assignable by the Executive.

The Company shall assign to and require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place.  As used in this Agreement, the “Company” shall mean NeoRx Corporation and any affiliated company or successor to its business and/or assets as aforesaid that assumes and agrees to perform this Agreement by contract, operation of law or otherwise; and as long as such successor assumes and agrees to perform this Agreement, the termination of the Executive’s employment by one such entity and the immediate hiring and continuation of the Executive’s employment by the succeeding entity shall not be deemed to constitute a termination or trigger any severance obligation under this Agreement.  All the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors and permitted assigns.

11.          Waivers

No delay or failure by any party hereto in exercising, protecting or enforcing any of its rights, titles, interests or remedies hereunder, and no course of dealing or performance with respect thereto, shall constitute a waiver thereof.  The express

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waiver by a party hereto of any right, title, interest or remedy in a particular instance or circumstance shall not constitute a waiver thereof in any other instance or circumstance.  All rights and remedies shall be cumulative and not exclusive of any other rights or remedies.

12.          Amendments In Writing

No amendment, modification, waiver, termination or discharge of any provision of this Agreement, or consent to any departure therefrom by either party hereto, shall in any event be effective unless the same shall be in writing, specifically identifying this Agreement and the provision intended to be amended, modified, waived, terminated or discharged and signed by the Company and the Executive, and each such amendment, modification, waiver, termination or discharge shall be effective only in the specific instance and for the specific purpose for which given.  No provision of this Agreement shall be varied, contradicted or explained by any oral agreement, course of dealing or performance or any other matter not set forth in an agreement in writing and signed by the Company and the Executive.

13.          Applicable Law

This Agreement shall in all respects, including all matters of construction, validity and performance, be governed by, and construed and enforced in accordance with, the laws of the State of Washington, without regard to any rules governing conflicts of laws.

14.          Arbitration; Attorneys’ Fees

Except in connection with enforcing Section 7 hereof, for which legal and equitable remedies may be sought in a court of law, any dispute arising under this Agreement shall be subject to arbitration.  The arbitration proceeding shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association (the “AAA Rules”) then in effect, conducted by one (1) arbitrator either mutually agreed upon or selected in accordance with the AAA Rules.  The arbitration shall be conducted in King County, Washington, under the jurisdiction of the Seattle office of the American Arbitration Association.  The arbitrator shall have authority only to interpret and apply the provisions of this Agreement, and shall have no authority to add to, subtract from or otherwise modify the terms of this Agreement.  Any demand for arbitration must be made within sixty (60) days of the event(s) giving rise to the claim that this Agreement has been breached.  The arbitrator’s decision shall be final and binding, and each party agrees to be bound by the arbitrator’s award, subject only to an appeal therefrom in accordance with the laws

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of the State of Washington.  Either party may obtain judgment upon the arbitrator’s award in the Superior Court of King County, Washington.

If it becomes necessary to pursue or defend any legal proceeding, whether in arbitration or court, in order to resolve a dispute arising under this Agreement, the prevailing party in any such proceeding shall be entitled to recover its reasonable costs and attorneys’ fees.

15.          Severability

If any provision of this Agreement shall be held invalid, illegal or unenforceable in any jurisdiction, for any reason, including, without limitation, the duration of such provision, its geographical scope or the extent of the activities prohibited or required by it, then, to the full extent permitted by law, (a) all other provisions hereof shall remain in full force and effect in such jurisdiction and shall be liberally construed in order to carry out the intent of the parties hereto as nearly as may be possible, (b) such invalidity, illegality or unenforceability shall not affect the validity, legality or enforceability of any other provision hereof, and (c) any court or arbitrator having jurisdiction thereover shall have the power to reform such provision to the extent necessary for such provision to be enforceable under applicable law.

16.          Coordination With Change of Control Agreement

The Company and the Executive are contemporaneously with this Agreement entering into a Change of Control Agreement (the “Change of Control Agreement”), which agreement provides for certain forms of severance and benefit payments in the event of termination of Executive’s employment under certain defined circumstances.  This Agreement is in addition to the Change of Control Agreement, providing certain assurances to the Executive in circumstances that the Change of Control Agreement does not cover, and in no way supersedes or nullifies the Change of Control Agreement.  Nevertheless, it is possible that a termination of employment by the Company or by the Executive may fall within the scope of both agreements.  In such event, payments made to the Executive under Section 5.1 hereof shall be coordinated with payments made to the Executive under Section 8.1 of the Change of Control Agreement as follows:

(a)           Accrued Obligations under this Agreement need not be paid if paid under the Change of Control Agreement;

(b)           COBRA Continuation under this Agreement need not be provided if provided under the Change of Control Agreement; and

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(c)           the severance payment required under Section 5.1(c) hereof need not be paid if a severance payment is made under Section 8.1(d) of the Change of Control Agreement.

17.          Excess Parachute Payments

Unless provided by Section 8.8 of the Change of Control Agreement, if any portion of the payments or benefits under this Agreement or any other agreement or benefit plan of the Company (including stock options) would be characterized as an “excess parachute payment” to the Executive under Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”), the Executive shall be paid any excise tax that the Executive owes under Section 4999 of the Code as a result of such characterization, such excise tax to be paid to the Executive at least ten (10) days prior to the date that he is obligated to make the excise tax payment.  The determination of whether and to what extent any payments or benefits would be “excess parachute payments” and the date by which any excise tax shall be due, shall be determined in writing by recognized tax counsel selected by the Company and reasonably acceptable to the Executive.

18.          Entire Agreement

Except as described in Section 16 hereof, this Agreement constitutes the entire agreement between the Company and the Executive with respect to the subject matter hereof, and all prior or contemporaneous oral or written communications, understandings or agreements between the Company and the Executive with respect to such subject matter are hereby superseded and nullified in their entireties, except that the Proprietary Information and Invention Agreement between the Executive and the Company shall continue in full force and effect to the extent not superseded by Section 10 hereof.

19.          Withholding

The Company may withhold from any amounts payable under this Agreement such federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation.

20.          Counterparts

This Agreement may be executed in counterparts, each of which counterpart shall be deemed an original, but all of which together shall constitute one and the same instrument.

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                IN WITNESS WHEREOF, the parties have executed and entered into this Agreement effective on the date first set forth above.

NEORX CORPORATION
By:
	Name:
	Its:
EXECUTIVE
By:
	Name:

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EX-21

EXHIBIT 21

SUBSIDIARIES OF REGISTRANT

NRX Acquisition Corporation (Washington)

EX-23

EXHIBIT 23

CONSENT OF INDEPENDENT

CERTIFIED PUBLIC ACCOUNTANTS

The Board of Directors

NeoRx Corporation:

We consent to incorporation by reference in the registration statements (Nos. 333-65862, 333-35442, 333-43712, and 333-45398) on Form S-3 and in the registration statements (Nos. 333-71368, 33-43860, 33-46317, 33-87108, 333-32583 and 333-41764) on Form S-8 of NeoRx Corporation, of our report dated January 25, 2002, relating to the consolidated balance sheets of NeoRx Corporation and subsidiary as of December 31, 2001 and 2000, and the related consolidated statements of operations, shareholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2001, which report appears in the December 31, 2001 annual report on Form 10-K of NeoRx Corporation.

/s/ KPMG LLP

Seattle, Washington

March 27, 2002